Packaging Corp. of America is rising, on schedule

Posted Sep 28th 2009 1:40PM by Joseph Lazzaro
Filed under: Stocks to Buy

I'm reiterating my Buy rating for Packaging Corp. of America (NYSE: PKG), first recommended on June 3, 2009, at a price of $16.55.

In June, the calculation was made that a lack of capacity in the containerboard industry, due to recession cut-backs, would benefit Packaging Corp., and so far the calculation is on the mark.

Packaging Corp. is the fifth largest producer of containerboard and corrugated packaging products, including corrugated boxes, and also serves as a mini-barometer for the U.S. economy. When corrugated box orders display a sustained increase, that's a recovery/economic expansion signal. The First Call FY2009/FY2010 EPS estimates for PKG are 97 cents to $1.00.

Technically, the $20 level has been breached, so don't look for formidable resistance at that level. The $20 price level will probably represent the last chance to earn an outsized gain with PKG in the next expansion.

Stock Analysis: Packaging Corp. of America is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in PKG now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your PKG position before October 2009. Sell/stop loss if you were to buy shares in this company: $7.

- -

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: Packing Corp. of America, PKG

Print this

Reader Comments (Page 1 of 1)

9-28-2009 @ 5:10PM

mrpaper said...

With corrugated box shipments not showing much sign of improvement, US containerboard producers are expected to announce major permanent capacity closures in the fourth quarter. Market speculation is that 1.5 to 2.0 million tons or more capacity may be permanently shuttered in the fourth quarter -- with the black liquor tax credit expected to expire at the end of December.

Doesnt sound liks a good investment to me