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| This Week in Paper by Joe Masters (MF Master) Charleston, SC (Feb 28, 1997) -- Set ablaze by some bullish comments from Morgan Stanley and some organizational news from Kimberly-Clark, the Paper/Forest group was hot this week. This comes on the heels of a significant, broad-based decline during the week prior. Destroying the general market, with the Dow losing 0.78% and the S&P500 dropping 1.37%, our Paper/Forest index increased a very respectable 3.73%. Topping our list of winner's for the week were James River <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:JR, up 8.71%)") else Response.Write("(NYSE:JR, up 8.71%)") end if %>, Fort Howard <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq:FORT, rising 8.18%)") else Response.Write("(Nasdaq:FORT, rising 8.18%)") end if %> and Kimberly-Clark <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:KMB, gaining 7.34%)") else Response.Write("(NYSE:KMB, gaining 7.34%)") end if %>. All three of these companies are involved in the tissue/toweling segment of the industry which, of course, is more consumer-oriented and less cyclical in nature than other paper grades. These types of companies are usually regarded as "safer" investments since their growth is more predictable. Losers this week included Jefferson-Smurfit <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq:JJSC, dropping 9.17%)") else Response.Write("(Nasdaq:JJSC, dropping 9.17%)") end if %> and Temple-Inland <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:TIN, declining 0.45%)") else Response.Write("(NYSE:TIN, declining 0.45%)") end if %>. No news accompanied the loss for Smurfit, but the stock has been very strong in the past year and it could be attributable to general "profit taking." Of our 20 "index" stocks, there were 15 advances, 2 declines and 3 unchanged. News You Can Use: Suomen Optioporssi, a Finnish options exchange, on Monday put the value of northern bleached softwood pulp at $540.85 per ton, down from $541.81 last week. Also Monday, Weyerhaeuser <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:WY)") else Response.Write("(NYSE:WY)") end if %> announced that it expects to take an after-tax charge of approximately $25 million, 12 cents per common share, against earnings in the first quarter of 1997. The charge reflects the impact of closure, consolidation or disposition of recycling facilities; the permanent closure of its corrugated medium machine at Longview, Wash.; the anticipated sale of Shemin Nurseries, a wholesale nursery business based in Danbury, Conn.; and interest income from the favorable federal tax decision relating to casualty losses associated from the eruption of Mount St. Helens in 1980. In addition on Monday, Morgan Stanley & Co. analyst Matt Berler upgraded Consolidated Papers Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CDP)") else Response.Write("(NYSE:CDP)") end if %>, Mead Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MEA)") else Response.Write("(NYSE:MEA)") end if %> and Champion International Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CHA)") else Response.Write("(NYSE:CHA)") end if %> to outperform from neutral. In a report, Berler said coated-paper markets in the U.S. "appear to have tightened to a surprising extent over the past three-to-four weeks, and could continue to firm for the next three-to-six months." Also, the stocks have suffered since the coated-paper cycle peaked in mid-1995, and ''now appear attractively valued by almost any measure,'' with investor expectations very low for the sector, he wrote. Finally on Monday, Thermo Fibertek Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX:TFT)") else Response.Write("(AMEX:TFT)") end if %> reported revenues of $192.2 million for the year ended December 28, 1996, compared with $206.7 million in 1995. Net income was $19.9 million, or $.33 per share, in 1996, compared with $20.2 million, or $.33 per share, in 1995. On Tuesday, Mead Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MEA)") else Response.Write("(NYSE:MEA)") end if %> said it has notified customers that it is raising prices for coated publishing papers by $40 to $50 a ton, or 5% to 7%. The move follows a recent price-increase announcement in Europe by UPM-Kymmene (Y.UPM), the big Finnish paper producer. Mead intends to raise prices immediately for shipments from inventory and on April 1 for manufacturing orders, according to a notice sent to customers. Also Tuesday, Westvaco <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:W)") else Response.Write("(NYSE:W)") end if %> reported fiscal 1997 first quarter sales of $736.4 million, a 1.7 percent decrease from the record $748.7 million total for the same period last year. Net income for the quarter was $35.5 million, or 35 cents per share, a decrease of 43.1 percent compared to $62.4 million, or 61 cents per share, reported for the same period in fiscal 1996. Pulp and paper concern Fletcher Challenge Ltd.'s Paper Division (FLC.NZ) said Wednesday it posted a loss of NZ$40 million for the first half ended Dec. 31, compared to a profit of NZ$186 million for the comparable period last year. Analysts had expected a loss of NZ$20 million or more for the first half. On Wednesday, Kimberly-Clark <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:KMB)") else Response.Write("(NYSE:KMB)") end if %> said it would sell pulp mills and woodlands at Terrace Bay, Ontario; New Glasgow, Nova Scotia; and Miranda, Spain. The company also will write down and close its Yucca, Ariz., mill. Kimberly already is in the process of selling its Coosa Pines, Ala., pulp and newsprint complex for about $600 million. Kimberly-Clark said it expects to record a net gain of seven cents a share in the first quarter for the sale of the Coosa Pines operation and the write-down of the Arizona mill. By exiting these operations, Kimberly-Clark is eliminating much of the cylical effect from its financial performance and improving its ability to react more nimbly to rival Procter & Gamble. The company also declared a 2-for-1 stock split, said it will boost its quarterly dividend by 4.3% and expand its share-repurchase program. Goldman, Sachs & Co. initiated coverage and put the stock on its recommended list. Also Wednesday, Morgan Stanley & Co. raised its rating on American Pad & Paper Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:AGP)") else Response.Write("(NYSE:AGP)") end if %> to strong buy from outperform. In addition on Wednesday, Westvaco Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:W)") else Response.Write("(NYSE:W)") end if %> registered a shelf offering of $300 million in debt securities. It said it would add the proceeds from the offering to general corporate funds that could be used for future capital outlays, working capital and debt repayment. On Thursday, Thermo Fibertek Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX:TFT)") else Response.Write("(AMEX:TFT)") end if %> announced that it has signed a letter of intent to acquire the assets of The Black Clawson Company's stock-preparation business for approximately $110 million in cash and the assumption of certain liabilities, subject to a post-closing adjustment. Black Clawson, a privately held company, generated revenues of more than $100 million from the sale of stock-preparation machinery for the fiscal year ended March 31, 1996. Also Thursday, James River Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:JR)") else Response.Write("(NYSE:JR)") end if %> said it reached a definitive agreement to sell about 95,000 acres of timberlands in Alabama and Mississippi to an investment unit of John Hancock Mutual Life Insurance Co. for $110 million in cash. On a short-term basis, James River expects to use proceeds from the sale to reduce debt. James River is also studying a possible redemption, conversion or exchange of certain of its outstanding series of preferred stocks, in which the proceeds could be used. "Model Portfolio" Update: Recovering from last week's rout were Fort Howard and Consolidated Paper. International Paper and Caraustar remained relatively flat. Other than the upgrade from Morgan Stanley on Consolidated, there was no significant news regarding any of the four companies. Purchase: IP = $40.50, FORT = $27.69, CDP = $49.13, CSAR = $29.00 Last Trade: IP = $41.63, FORT = $29.75, CDP = $50.63, CSAR = $29.75 This Week: Year-to-Date: Model = + 3.52 % Model = + 15.19 % SP500 = - 1.37 % SP500 = + 6.76 % FSPFX = + 1.31 % FSPFX = + 1.26 % Commentary: If you are a regular reader of my weekly articles, you'll probably have noted by now that I disperse more numbers than I do words. Words can tend to convey opinions which are subject to inaccuracies. Numbers, however, do not lie. In keeping with tradition, let me throw out a few more numbers here. In Thursday's edition of the "Wall Street Journal", there was a very nice summarization of historical performance by industry sector. Looking at the Paper/Forest area, the following was reported for 1, 5 and 10-year average returns through 12/31/96 (respectively, as listed below). Returns include reinvested dividends. Figures in parentheses represent losses. Containers & Packaging - 27.2%, 9.5%, 14.1% Sonoco Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:SON)") else Response.Write("(NYSE:SON)") end if %> - 0.8%, 12.1%, 13.8% Temple-Inland <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:TIN)") else Response.Write("(NYSE:TIN)") end if %> - 26.5%, 3.3%, 11.2% Stone Container <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:STO)") else Response.Write("(NYSE:STO)") end if %> - 7.6%, (8.9%), (0.4%) Forest Products - 11.2%, 12.1%, 11.0% Willamette <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:WLL)") else Response.Write("(NYSE:WLL)") end if %> - 26.3%, 21.0%, 15.9% Weyerhaeuser <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:WY)") else Response.Write("(NYSE:WY)") end if %> - 13.4%, 15.2%, 10.7% Louisiana-Pacific <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:LPX)") else Response.Write("(NYSE:LPX)") end if %> - (10.8%), 9.3%, 10.7% Georgia-Pacific <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:GP)") else Response.Write("(NYSE:GP)") end if %> - 7.8%, 8.8%, 10.0% Potlatch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:PCH)") else Response.Write("(NYSE:PCH)") end if %> - 12.0%, 6.2%, 7.8% Rayonier <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:RYN)") else Response.Write("(NYSE:RYN)") end if %> - 18.6%, NA, NA Household Products, Non Durable - 37.2%, 18.5%, 16.8% Procter & Gamble <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:PG)") else Response.Write("(NYSE:PG)") end if %> - 32.2%, 20.6%, 22.0% Kimberly-Clark <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:KMB)") else Response.Write("(NYSE:KMB)") end if %> - 17.8%, 17.5%, 21.0% James River <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:JR)") else Response.Write("(NYSE:JR)") end if %> - 40.3%, 15.0%, 2.8% Paper Products - 12.2%, 9.1%, 7.4% Bowater <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BOW)") else Response.Write("(NYSE:BOW)") end if %> - 8.3%, 14.4%, 5.7% Mead Corp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MEA)") else Response.Write("(NYSE:MEA)") end if %> - 13.6%, 13.5%, 10.4% Champion <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CHA)") else Response.Write("(NYSE:CHA)") end if %> - 3.4%, 13.1%, 5.1% Boise-Cascade <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BCC)") else Response.Write("(NYSE:BCC)") end if %> - (6.4%), 9.8%, 1.8% Consolidated Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CDP)") else Response.Write("(NYSE:CDP)") end if %> - (9.6%), 9.2%, 9.8% International Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:IP)") else Response.Write("(NYSE:IP)") end if %> - 9.6%, 5.3%, 10.9% Westvaco <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:W)") else Response.Write("(NYSE:W)") end if %> - 6.8%, 5.0%, 8.0% Union Camp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:UCC)") else Response.Write("(NYSE:UCC)") end if %> - 4.0%, 2.6%, 7.2% Jefferson Smurfit <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq:JJSC)") else Response.Write("(Nasdaq:JJSC)") end if %> - 69.1%, NA, NA Fort Howard <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq:FORT)") else Response.Write("(Nasdaq:FORT)") end if %> - 23.1%, NA, NA
Dow Jones Industrial Average - 28.2%, 18.3%, 16.6% The numbers seem to suggest to me that one might be better off with an index fund than with stocks of companies in these sectors unless, of course, one happened to pick the right company and the right time. Naturally, this is what investing is all about: attempting to make the most of your money with "acceptable" risk. Over the very long haul, one truly might gain more advantage with an index fund than with any of the individual companies listed above. In fact, only two of the forementioned companies (Procter & Gamble and Kimberly-Clark) provided a better return to investors over a 10-year period. However, us Foolish investors know that certain benefits can be provided by "appropriate" timing of the market. (What?!?! A Fool suggested we try and time the market???) Yes, but the key word here is "appropriate." Unless you are willing to accept a much higher risk factor, "appropriate" does not mean daily, weekly or even monthly. "Appropriate" in my interpretation, for investing in this sector is measured over the course of several years. As expressed before, this industry (except for Consumer Non-Durables) will ebb and flow in tandem with the general cycle of the global economy. This cycle is fairly predictable. The Foolish investor understands that the best time to invest in this industry is when companies are losing money and few want to own stocks in this sector, thus depressing prices. The Foolish investor knows that the majority of these companies are not losing money because they are poorly managed, but rather because of weakness in the normal economic cycle. The Foolish investor knows conditions will eventually improve and these companies will again be hugely profitable causing stock prices to rise correspondingly, at which time he/she will sell since we know the next downturn is somewhere around the corner. This, in my judgment, is the best way to use this sector to beat the apparently superior long term return offered by the Dow. This is not to say that shorter term investing can't be even more profitable. However, the associated risks are certainly higher. Unfortunately, brokers don't operate like Circuit City where you can get the difference plus 10% if within 30 days you find the same stock at a lower price. If they did, even my portfolio might look better. OK.... enough words for now. Keep them presses rolling !!! |
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