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Packaging Corp. of America (PKG), which I first wrote about on June 3, 2009, at a price of $16.55, is business model that continues to show promise. Here's why: Way back 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. The containerboard market should rebound nicely in 2010, leading to a 5% to 7% revenue increase for PKG, after a 10% decline in 2009.
In addition, prices should improve slightly in 2010, and when they do, that will probably convince those institutional investors who haven't already committed to PKG to do so. With the aforementioned in mind, according to my analysis, PKG should trade above $30 in 2010. The First Call FY2010/FY2011 EPS estimates for EFX are $1.24 to $1.62.
Technically, Packaging Corp.'s stock chart is strong -- an uptrend, but with above-average volatility, and dips below the key, 50-day moving average. The volatility should lessen in 2010 as additional evidence confirms a sustained U.S./global economic recovery, but volatility can't be ruled out entirely. Therefore, if you can't tolerate 10% to 20% stock swings in a month, you shouldn't buy PKG.
2010 Outlook: I view Packaging Corp. of America as a long-term play, but if investors are looking to sell PKG within the year, it's probably best to take your profits after it rises to $28-29, if it fails to clear $30.
Stock Analysis: I consider Packaging Corp. of America to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 50% position in PKG now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 75% of my PKG position before April 2010 and I'd put a sell/stop loss at: $7.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
Technically, Packaging Corp.'s stock chart is strong -- an uptrend, but with above-average volatility, and dips below the key, 50-day moving average. The volatility should lessen in 2010 as additional evidence confirms a sustained U.S./global economic recovery, but volatility can't be ruled out entirely. Therefore, if you can't tolerate 10% to 20% stock swings in a month, you shouldn't buy PKG.
2010 Outlook: I view Packaging Corp. of America as a long-term play, but if investors are looking to sell PKG within the year, it's probably best to take your profits after it rises to $28-29, if it fails to clear $30.
Stock Analysis: I consider Packaging Corp. of America to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 50% position in PKG now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 75% of my PKG position before April 2010 and I'd put a sell/stop loss at: $7.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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