GO
Loading...

Boring: It Worked for Warren Buffett

Friday, 16 May 2008 | 6:33 PM ET
Cramer on Packaged Goods
Mad Money host Jim Cramer has a real comeback play tonight.

There’s no doubt that investing in cardboard-box companies is downright boring. But hey, Warren Buffett made billions off boring. So remember what Cramer always says: Don’t be a stock snob. It could cost you money, especially if you pass up the chance to buy a name such as Packaging Corp. of America.

The packaging industry as a whole has been down lately, but Cramer’s predicting a turnaround. Tighter supply should push up prices, he said, and Packaging Corp. is one of the most likely in the sector to benefit.

It turns out International Paper suffered a factory explosion earlier in May that took 2% of U.S. capacity out of the market. IP also recently bought out Weyerhaeuser’s containerboard business, further reducing supply. If the premise behind supply and demand holds true, product prices should go up.

Why’s PKG better positioned than its peers, though? Well, for one, the company enjoys higher margins because it doesn’t use recycled cardboard, which is more expensive than virgin fiber. Then there’s the fact that PKG deals more with local and regional clients, Cramer said, that usually buckle to price increases before the larger, national firms.

PKG also has the dividend yield (5.1%) and buyback ($110 million, or 4% of shares outstanding) that Cramer loves so much. Based on that dividend, he said this stock could jump as high at $33 from its present level of about $25.

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

  Price   Change %Change
IP
---
PKG
---
WY
---

Contact Mad Money

  • Showtimes

    Monday - Friday 6p ET
  • Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

Mad Money Features

  • Grab the latest CNBC gear from the NBCUniversal Store!

  • Get a behind-the-scenes look at how Cramer formulates his investment advice. "Inside the Madness" is a column, which features e-mails and more with Cramer and his researcher Nicole Urken.

  • You’ve always wanted to hit the “Hallelujah!” button. Here’s your chance.