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The newsprint industry has been one disaster of a sector to invest in. However, as Barron's Andrew Bary pointed out in a contrarian piece on the Bowater Incorporated (NYSE: BOW) and Abitibi Consolidated Inc (NYSE: ABY) merger, this might be a sign this industry is finally bottoming out.

Some relevant stats:
  • Bowater shares are down to $23 from a high of $59 in 2000 while Abitibi shares are down from $20 a decade ago to $2.80
  • The combined company will be the third largest forest-products company in the US behind Weyerhaeuser (WY) and International The merged company will have 50% market share of the North American newsprint business
  • The decline in newsprint demand might have bottomed as demand from emerging markets is beginning to offset the decline in mature markets. Newsprint demand grew 1% last year. However, North American demand decreased 7%
  • By 2008, global newsprint demand could increase 2%, according to Citigroup
Citigroup indicates that Bowater's poor first quarter performance might be the bottom for the Canadian-based company and forecasts earnings of $ 1.00 in 2008 jumping to $2.35 in 2009. Citigroup has a target price of $35. Citi also has a $5.00 target on Abitibi.

The merged company also has $2.0 billion of assets it could sell to paydown the $5.6 billion in debt of the combined companies. The merged company will generate revenue of $8 billion.

The newsprint industry is the contrarian of contrarian investments. While most commodities have performed well this decade, this sector has been a disaster. However, it is time to start looking at these two companies. Start listening to conference calls to see if the companies can hit their quarterly earnings targets. If they can, these stocks could have a good run.

Bowater & Abitibi deal might point to industry bottom originally appeared on BloggingStocks on Mon, 02 Apr 2007 08:00:00 EST. Please see our terms for use of feeds.

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