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 depending on the economic environment that develops after a strong 2018. 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 winner” in an environment of higher longer-term interest rates induced by continued-healthy economic growth. On the other hand, we see the rigid/flexible packaging companies as well as the timber REITs as being more defensive should the economy weaken considerably or slip into a recession.

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