Packaging is a safe bet for investors

- Last updated on GMT

Related tags: Stock market, Finance

A recent report published by The Wall Street Transcript reveals
that the packaging sector, and in particular food packaging, is
currently a steady investment because of its almost guaranteed
long-term performance.

A recent report published by The Wall Street Transcript reveals that the packaging sector, and in particular food packaging, is currently a steady investment because of its almost guaranteed long-term performance.

Joel Tiss, Senior Vice President at Lehman Brothers, the US investment house, believes that because of the recession the packaging sector is now out-performing many other industries which were providing big dividends before the recession hit.

"The stocks have almost doubled in the last two years. If you look back over five years, the [packaging] companies have underperformed like crazy _ less than half the market return for the first three of the five-year period. In these last two years, they have almost caught back up again."

Tiss believes that because many of the previously high-return investments on the stock market are now underperforming, a good bet for investors is the more steady sectors, such as the food packaging industry.

"Usually, these are early- and late-cycle stocks. So when economic uncertainty is right around the corner, or we're in it, these stocks tend to do a lot better than the overall market. It may be related psychologically, but in reality, these are pretty "Steady Eddie,'' four per cent to six per cent internal growth rate companies that can deliver anywhere from six per cent EPS growth in a recession to 15 per cent plus in a more robust economy."

"What caused them to underperform was the same thing. Who wants a ten per cent, 12 per cent or 15 per cent earnings growth company, when you can buy ones that are going to grow 50 per cent a year every year for the rest of our lives? Packaging is just not competitive in that scenario."

But according to Tiss the recession has meant that investors have now changed their expectations of the market, which means they are happy to pluck for a per the ten to 12 per cent dividends that many of the major food packaging companies currently represent.

Related topics: Processing & Packaging

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