Low-Risk Investing in Cardboard Boxes

Want a low-risk investing idea? There will probably be plenty of them that show up at your doorstep in the next couple weeks. Let me explain.

Amazon (AMZN) ships more than 600 million packages per year, which works out to more than 1.6 million packages per day. Most of them are cardboard boxes.

Furthermore, Amazon’s business is still growing fast—revenues were up 34% in the third quarter from last year—so the number of cardboard boxes used continues to grow!

One way to invest in this trend is to invest in the shippers; UPS (UPS) and FedEx (FDX) are worth looking at.

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But everyone knows about UPS and FedEx, so there’s no opportunity there to beat the crowd. And I don’t like to invest with the crowd. (Plus FDX has doubled over the past two years, so there’s no way you’re early there.) Instead, I prefer to invest in less-famous stocks, because they have more upside potential. As people become aware of the companies’ growth stories, the additional buying power tends to push the stocks up, making it a low-risk investing opportunity.

So today I want to tell you about my latest recommendation in Cabot Stock of the Week. It’s a major player in the cardboard box business, but most people don’t know its name.

Low-Risk Investing in a Big Cardboard Box Merger

The story starts with a big merger two years ago.

A company based in Georgia merged with a company based in Virginia to create a company with $11 billion in revenues and more than 4,000 employees in 30 countries. Since then, thanks in part to Amazon, revenues at the company (let’s call it Company X) have grown to nearly $15 billion, and the future looks bright—for investors who can see it.

That’s because even though $15 billion is a big number, Company X still has “only” 20% of the North American market for packaging.

And it’s not only Amazon’s cardboard boxes that are driving the business; it’s also pizza boxes, six-pack holders for beer and wine, cardboard point-of-sale displays, paper bags, and packaging for personal care and health care products.

In the personal care division, for example, Company X has a group dedicated to designing sprayers for perfumes and other fragrances. Men like differently shaped bottles than women, and older users favor different features than younger users. And the research the company has done enables it to advise fragrance companies on design.

And then there’s packaging for medicine, where the job is much more complicated than simply containing the medication. The company’s best containers help to increase compliance—also known as adherence—so that patients take their medications as prescribed.

This package, for example, uses a tiny microprocessor to not only track when a patient removes the medication but also to record how the patient is feeling at the time.

All told, it’s an impressive product mix, bound to grow as the U.S. economy grows. Plus, there’s great potential for growth outside the U.S. As I mentioned earlier, Company X has operations in 30 countries. Last year, it entered into a joint venture with a Mexican company that netted part ownership of three corrugated packaging facilities. And next year, it plans to invest in a Brazilian box plant.

As to earnings, the company reported earnings that beat analysts’ estimates in the two most recent quarters. Looking forward, management expects to see revenues grow 10% in 2018 to a record $16.4 billion.

Meanwhile, on Wall Street, analysts expect earnings to grow 40.4% in 2018 and 13.0% in 2019, assisted by margin expansion, post-merger cost-saving initiatives, and a flourishing global economy.

And that makes the 2018 price/earnings ratio (P/E) a relative value at 17.2.

There’s A Good Dividend Yield, Too

Also, there’s a bonus! The company pays a dividend of 2.7%.

Last but not least, there’s a positive price chart.

This mystery stock provides a low-risk investing opportunity in cardboard boxes.Company X came public in 2015 at 60 and the stock then lost half its value over the following seven months—not a good start. But since then, it’s been trending steadily higher, and in recent days it not only broke out to new highs—it also held onto those gains.

Bottom line: There’s no selling pressure here. Every investor in the stock is happy to be on board and willing to ride it higher.

If you’d like to join them in this low-risk investing opportunity—and get full details on all the stocks in my Cabot Stock of the Week portfolio—simply click here.

What is Cabot Stock of the Week?

Simply my very best stock recommendation—every week.

Every week, I survey all the stocks recommended by all the Cabot analysts—growth stocks, value stocks, large-cap stocks, small-cap stocks, momentum stocks and foreign stocks—and select one to recommend to my Cabot Stock of the Week readers—and then I follow the portfolio until I recommend selling!

As I write, the portfolio holds 17 stocks. 15 of those stocks have profits. And the average of those profits is 91.9%.

If you’d like your portfolio to look as good, you need to take a look.

Timothy Lutts

Find the Best Stocks to Buy!

Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditions

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Comments

  • Jason A.

    Corrugated cardboard boxes are very thick in stock because these boxes are made by using two types of packaging material. These boxes are vary in size and shapes as per to the demands.

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