Hey, people, let's stop and think. IP and all the paper and forest products stocks appear to be discounting a worldwide recession next year by all the normal valuation measures -- i.e., P/E, relative P/E, price-to-book ratio, dividend yield, price to projected revenue out in 1999. This is a given and it may be time to start nibbling at the stocks -- not run out there and buy like mad, note.
But keep in mind that reported results for IP and for the rest of the group have been buoyed by structural panel pricing, which has started to roll over. The third quarter results when reported are going to look nasty; the fourth quarter is going to be carnage.
Buying these stocks now is betting that a rate cut will be enough of a boost to GDP to get demand back up to where the industry has a prayer of pricing power.
If you are going to make this bet, IP is not really the way to go. It is the industry flagship, true, but it's sluggish. The restructuring plan is more smoke than fire. If you want maximum leverage without betting on the fringe, think about GP.
If you want something in the industry with relatively steady cash flows and new incentives to make a decent return, think about TGP, the letter stock for GP's timber operations. |
