We recently published a list of 7 Best Paper Stocks To Buy Right Now. In this article, we are going to take a look at where Avery Dennison Corporation (NYSE:AVY) stands against other best paper stocks to buy right now.
Trends and Challenges in the U.S. Paper Industry
The global paper industry faces challenges from digitalization and environmental concerns but sees growth in packaging and specialty papers. Key trends include a shift to sustainable, recyclable packaging, declining graphic paper demand, eco-friendly production processes, and rising demand in emerging markets.
In 2023, U.S. paper and paperboard capacity decreased by 1.6% to 79.7 million tons, marking a sharper decline compared to the average annual drop of 0.9% since 2014. Paper and paperboard production also saw a significant decrease of 7.2%, with reductions across all categories except tissue.
Since 2012, containerboard has accounted for over 50% of total paper and paperboard capacity, although it saw a slight decline of 0.7% in 2023, remaining near record levels due to prior growth. The printing and writing paper segment experienced a significant decrease, with capacity dropping 5.0% in 2023, now comprising just 12% of total capacity, down from 28% in 2000. Tissue capacity declined year over year by 0.9% in 2023 but has shown an average annual growth rate of 0.4% from 2014 to 2023.
In contrast, packaging paper capacity increased by 4.8% in 2023, driven primarily by growth in unbleached packaging papers. Financially, the U.S. paper manufacturing industry generated approximately $56.39 billion in revenue in 2023, with projections suggesting growth to $57.32 billion by 2032 at a compound annual growth rate (CAGR) of 0.17% from 2024 to 2032. From the start of the year to October 25, the industry is down 0.44%, based on the performance of the timber ETF managed by Blackrock. You can read more about the timber industry’s year-to-date performance in our article on 10 Worst-Performing Industries in 2024.
The forest products industry contributes about 5% of the US manufacturing GDP and employs 925,000 individuals, supporting over 2 million indirect jobs. Read more at 11 Best Paper Stocks to Buy Now.
Sustainability trends are shaping the pulp and paper industry, with companies adopting responsible forestry practices and increasing the use of recycled fiber to meet stakeholder expectations. According to McKinsey, 55% of American consumers are concerned about the environmental impact of paper products, highlighting the importance of circularity in addressing these issues.
In the foreseeable future, there will likely be an increase in the overall consumption of wood products. The entire use of wood products is expected to increase in 2060 compared to 2010, according to a report released by the science-based non-profit Union of Concerned Scientists. Interestingly, the pulp and paper industry is expected to account for the majority of the anticipated rise in the use of wood products by 2060.
READ ALSO: 10 Best Land and Timber Stocks to Buy According to Hedge Funds and 15 Best Lumber Stocks to Buy Now.
Our Methodology
For our methodology, we selected stocks from the timber-industry-tracking ETF managed by Blackrock and ranked the best paper stocks to buy right now based on their total number of hedge fund holders as of Q2 2024.
“Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).”
A professional looking suit clad figure interacting with one of the companies radio-frequency identification products. .
Avery Dennison Corporation (NYSE:AVY)
Number of Hedge Fund Holders: 33
Avery Dennison Corporation (NYSE:AVY) is a global materials science and digital identification solutions company that designs and manufactures adhesive labels, tags, and branding materials for industries such as retail, e-commerce, logistics, food, pharmaceuticals, and automotive.
In Q2 2024, Avery Dennison Corporation (NYSE:AVY) reported earnings per share (EPS) of $2.42, a 26% year-over-year increase. The Materials segment experienced a 6% organic sales growth, rebounding from last year’s inventory destocking, with significant volume increases in Europe and Asia. The adjusted EBITDA margin improved to 17.9%, up over two percentage points due to enhanced productivity. Meanwhile, the Solutions Group saw an 11% rise in organic sales and a 16.8% adjusted EBITDA margin, driven by increased volumes in the apparel sector and intelligent labels.
Avery Dennison Corporation (NYSE:AVY)’s free cash flow of $201 million in the first half of 2024, up by $137 million from the previous year, highlights strong financial health. This cash flow increase enhances financial flexibility, supports dividends and share buybacks, and funds growth and acquisitions. The net debt-to-adjusted EBITDA ratio of 2.2x reflects manageable debt and operational stability, allowing for potential strategic borrowing. For investors, these metrics signal robust cash generation, financial discipline, and a foundation for growth, positioning the company to deliver continued shareholder value.
Strategic investments in intelligent labels and new customer rollouts in high-value sectors like logistics and food are expected to support ongoing growth. Additionally, on April 9, Avery Dennison introduced new electrode fixing tapes for electric vehicle (EV) battery assembly, aimed at boosting sluggish sales growth.
As of Q2 2024, 33 hedge funds held stakes in the stock in the Insider Monkey database. The largest stakeholder out of these was Cartenna Capital, holding shares worth $42,636,750. The stock holds a Moderate Buy rating based on 9 Wall Street analysts. In the last three months, analysts set a 12-month price target for Avery Dennison, averaging $242.38. The forecasts range from a low of $207.00 to a high of $275.00, representing a 12.77% increase from the current price of $214.93.
Overall, AVY ranks 3rd on our list of best paper stocks to buy right now. While we acknowledge the potential of paper companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AVY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock
Disclosure: None. This article is originally published at Insider Monkey.
