American Israeli Paper: Steady Revenues, Volatile Stock

American Israeli Paper Ltd. (AMEX: AIP) is a holding company whose subsidiaries engage in the manufacturing and marketing of paper products in Israel. Its products include writing and printing paper, household paper products, cardboard, and even disposable diapers. Another of its subsidiaries offers engineering services to other paper-processing plants.

AIP has always been a volatile stock, and this year has been no exception. The stock price has been all over the place; its 52-week range is only $14, but the stock constantly seems to be rising and falling by several dollars. What moderates this unevenness is a historically strong (and also uneven) dividend, which has had special payments and averages out to be an annualized 5.40% over the past five years.

The key to investing in this company is to maximize your profit by waiting for a low swing, and I think the company may be in one right now. While revenues have climbed a bit this year, operating income is way down due to some "extraordinary" expenses resulting from its operations in Turkey. The lira declined significantly against the dollar, and the Turkish corporate tax rate dropped, which diminished the value of a tax asset. One plant may be investigated for air-quality concerns, and AIP's operations also suffered from higher energy prices in the beginning of the year.

Third quarter results aren't in yet, and if AIP has another bad quarter we may see the price drop again, which would be a good time to buy. Meanwhile, the company is working to convert its plants from oil to natural gas, which should increase profitability in the coming years. If you pick the right moment, you could get a profit from a rising stock price and from that nice dividend.

Type of stock: A foreign paper company with steady revenues and an unsteady stock price.

Price target: Now in the mid $40s, I think this stock could have a few points in it ---up to $50. Remember to keep your eye out for the third-quarter results.