Packaging and Forest Products

Vertical Research sees two key themes dominating the investment discussion in Packaging and Forest Products over the next one to two years: (1) the secular structural improvements in U.S. containerboard and global fluff pulp, and (2) relative winners and losers from the US corporate tax reform, potential changes in regulations, and longer-term interest rates in the US. The virgin fiber-based United States containerboard/box system should benefit from its near-complete vertical integration coupled with a looming tightness in recyclable materials required by overseas producers. We also see the global market for fluff, or absorbent, pulps benefiting from recent consolidation moves. We also see the containerboard and paper/pulp names as “relative winners” in an environment of lower corporate tax rates and higher longer-term interest rates induced by accelerated economic growth. On the other hand, we see the rigid/flexible packaging companies as well as the timber REITs as being less positively impacted in such an environment.

Top Picks:

  • Louisiana-Pacific Corp (LPX)
  • International Paper Co (IP)