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International Paper Company (IP): This Multi-Billion Dollar Hedge Fund Loves Paper, Should We?

Published on April 3, 2013 at 1:38 pm by The Motley Fool in Hedge Funds
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Clearwater Paper Corp (NYSE:CLW) is a producer of private label tissue and paperboard products, with a focus on products primarily manufactured in the U.S. and Canada. One of the big drivers for 2013 should be its new tissue machine. Demand for tissue is expected to expand along with a rising population. Clearwater Paper Corp (NYSE:CLW) is well positioned in the private label tissue market and has an opportunity to increase its share in the Eastern U.S. Clearwater managed to report 4Q earnings results that had EPS of $0.84, beating consensus by $0.04 and well above $0.55 from the same quarter last year, but I am not a fan of its overexposure to the tissue market.

P.H. Glatfelter Company (NYSE:GLT) manufactures specialty papers and fiber-based engineered materials. P.H.’s major growth area includes tea bags, which should continue to see impressive demand on the back of a rising economy. P.H. Glatfelter Company (NYSE:GLT) is also looking to grow via acquisitions, with its pending $209 million acquisition of Dresden Papier. Dresden makes non-woven wallpaper materials, with P.H. expecting the planned acquisition to be accretive to EPS by $0.25 annually upon completion of the deal. The deal announcement and a recent 11% increase in its dividend payment has already lifted the stock 30% year to date.

Don’t Be Fooled

International Paper Company (NYSE:IP) pays the highest dividend yield at 2.6%, compared to Domtar’s 2.3% and P.H. Glatfelter’s 1.7%. The stock does trade at one of the highest price to earnings ratios, but it may well be justified given IP’s growth prospects. Utilizing various joint ventures and cost cutting measures, analysts expect EPS to grow at a 5-year annualized rate of 30%, compared to Clearwater’s 10% rate, Domtar’s 0% and P.H.’s 14%, making IP one of the best bets in the paper industry (see how hedge funds are trading IP).

The article This Multi-Billion Dollar Hedge Fund Loves Paper, Should We? originally appeared on Fool.com and is written by Marshall Hargrave.

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