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Conventional wisdom says that growth in the America container-board market is heavily tied to the health of the U.S. economy, and a company's overall success is directly proportional to the size of the operation. But Packaging Corporation of America (PKG), one of the most profitable of all of the U.S. container-board companies, defies both of these notions.

PCA is a relatively small operation, when compared to its rivals. But the company is successful because of two fundamental strengths: a low debt load and flexibility of both fuel and fiber. The low overhead of a company operating with relatively little debt is easy to understand, but there are significant cost savings to be gained in this market as well, by having the ability to adapt production to whichever raw materials are cheapest and most readily available.

PCA's flexibility also gives it an advantage over the competition when it comes to the international markets. Other countries, especially in Asia, require different products than the U.S. market does, and PCA's ability to adjust its production process to meet this foreign demand with relatively little change in expense leaves the company able offset any instability in the U.S. economy with income from foreign markets (especially China).PCA does say that there will be a slight downturn in fourth quarter profits this year, after a plant shutdown in October (everything is up and running now, though). This may present a great opportunity to pick up this one below market value, and, as Goldman Sachs (which rates PCA a conviction buy) is confident that the container-board market will remain strong through 2008, and prices will rise throughout the second quarter, there's plenty of time for the stock to recover, and then some.

Type of Stock: Packaging Corporation of America manufactures and distributes container-board and corrugated packaging worldwide.

Price Target: Goldman is estimating a target price of $32 a share by the second quarter of 2008; I'd wait to see if you can get this one under $26 (which could easily happen if we have another bad day in the market).

Source: Packaging Corporation of America: Packing in the Profits