In this series of articles, I will be taking a look at various industry sectors and selecting what I believe will be outperforming stocks for 2015. In part 1, I reviewed 47 stocks within the Aerospace and Defense industry sector. For part 15, in determining my favorite stocks in this sector for 2015, I will review the following Containers & Packaging stocks:
- AEP Industries (NASDAQ:AEPI)
- AptarGroup (NYSE:ATR)
- Avery Dennison (NYSE:AVY)
- Ball (NYSE:BLL)
- Bemis (NYSE:BMS)
- Berry Plastics Group (NYSE:BERY)
- Crown Holdings (NYSE:CCK)
- Graphic Packaging Holding (NYSE:GPK)
- Greif (NYSE:GEF)
- Intertape Polymer Group (OTCQB:ITPOF)
- MeadWestvaco (MWV)
- Myers Industries (NYSE:MYE)
- Owens-Illinois (NYSE:OI)
- Packaging Corp of America (NYSE:PKG)
- Rock-Tenn (RKT)
- Sealed Air (NYSE:SEE)
- Silgan Holdings (NASDAQ:SLGN)
- Sonoco Products (NYSE:SON)
- UFP Technologies (NASDAQ:UFPT)
The first step I took to narrow down the list of possible options was to look at the earnings over the past five years of these stocks within the industry sector. I removed the following stocks from further review because of their negative or flat (less than 5%) earnings growth over the past five years:
- AEP Industries
- Graphic Packaging Holding
- Myers Industries
- Sealed Air
- UFP Technologies
I then took the list of remaining stocks and checked the revenue growth of each over the past two years. I am removing any stocks that had flat (less than 2%) growth or saw a decline in revenue over the past two years. These stocks include:
My next move was to examine the trailing PEG ratio of each of the remaining stocks. I removed any stock that had a PEG ratio over 3 to focus more specifically on fairly valued/undervalued stocks. These stocks included:
- Berry Plastics Group
The next set of data I reviewed was the Fundamental and Value Scores for each of the ten remaining stocks. These scores are calculated by YCharts and I have found them to be very useful when researching investment options. More details on each of the scores can be found here and here.
|Fundamental Score||Value Score|
|Intertape Polymer Group||7||9|
|Packaging of America||10||9|
To determine the best stocks for 2015, I'm only taking into consideration stocks with a fundamental score of 8 or higher and a value score of 6 or higher. Doing this left me with the following remaining stocks:
- Avery Dennison
- Packaging of America
- Silgan Holdings
- Sonoco Products
My next step was to look at the book value of each company and to remove any stock that has seen a decrease in its book value over the past five years. The only company to have seen a decrease in book value over this time period was Avery Dennison.
My next step was to look closer at each stock remaining that passed all previous criteria and determine whether or not there were any reasons to eliminate them as great stock candidates for 2015. In doing so, I reviewed the financials of each company, the most recent quarterly report transcripts, and searched for any news items that warranted concern.
Packaging of America
In its latest quarter, the company posted a 14% increase in revenue and an increase in earnings per share from $1.05 to $1.16 compared to the same period last year. While the results were overall positive, the company did report downside future guidance as it anticipates lost production, higher operating costs, and fewer production days compared to Q4.
In its latest quarter, the company posted a 6% increase in revenue and an increase in adjusted earnings per share from $0.83 to $0.96 compared to the same period last year.
The company performed well across the board with significant net sales increases in its corrugated packaging segment, consumer packaging segment, and merchandising displays segment, with only its recycling segment seeing a decline compared to the same period last year. The CEO stated in its latest earnings call that the strong sales trends have continued into January of this year.
In its last quarter, the company posted a 5% increase in revenue and a slight increase in earnings per share from $0.36 to $0.37 compared to the same period last year. The company reported strong full year results and has given full year earnings guidance for 2015 in the range of $3.20 to $3.40, compared to the $3.17 2014 full year results.
I believe the company's decision to shut down its facility in Venezuela has limited its risk, while moves such as the Van Can acquisition and the Portola Packaging integration will help the company achieve sustained growth.
In its last quarter, the company reported a 9% increase in revenue and earnings per share that were on par with the same period last year. The company's full year earnings per share were up 9% compared to 2013. The company expects future earnings growth as it has issued 2015 guidance in the range of $2.60 to $2.70 compared to 2014 actual value of $2.54.
With strong growth across its portfolio and continued expansion in Europe, partly due to its Weidenhammer acquisition, Sonoco appears fully capable of seeing continued significant profit and earnings growth moving forward.
I believe that the downside risks that Packaging of America outlined in its press release will have a negative impact on the stock's ability to see significant gains this year. I do believe that the remaining three stocks all are fairly priced and have operating performance and growth strategies in place that should deliver strong quarterly results in the near term. I believe because of this, these three stocks have a strong chance of outperforming the market for the remainder of 2015.
My favorite out of the three is Rock-Tenn. Looking at the charts below, you can see that it has the current best valuation based on trailing/forward PE ratios and price to book value, it has seen the highest book value increase over the past five years and has seen the best price appreciation over the same time period.
For part sixteen of this series, I will be reviewing the Diversified Consumer Services industry sector. As always, I suggest individual investors perform their own research before making any investment decisions.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.