By Hilary Kramer
ROCKVILLE, Md. (MarketWatch) — Graham Packaging, which develops plastic containers for consumer products, launched an IPO early last year. But investors were not impressed with Graham stock. Graham Packaging priced the deal at $10 a share, which was well below the expected $14-$16 range. And then the newly minted stock tread water.
Well, things certainly perked-up this year for Graham Packaging . In April, Graham received a buyout offer from Silgan /zigman2/quotes/203176174/composite SLGN -0.55% . Then in the past few weeks, New Zealand’s Rank Group joined the fray, making its own bid for Graham. Graham stock is now trading around $25. Yes, you don’t have to play high-fliers like LinkedIn to make money on IPOs. Is the 2011 IPO scene a bust? Find out on InvestorPlace.com.
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However, is Graham Packaging an isolated event or a start of a new trend in the packaging industry? I think it’s the latter. Keep in mind that the packaging industry tends to outperform when the economy is shaky. No doubt, recent reports show that the U.S. has hit a “soft patch.” Essentially, packaging has the advantage of being focused on the food and beverage industries, which tend to have stable demand profiles.
Another driving force will be acquisitions. Such deals often allow for substantial cost savings, which can help boost margins.
So what are some packaging stocks to consider? Here’s a look at four:
This is a global packaging powerhouse, although much of its manufacturing footprint is in the U.S.
MeadWestvaco has a large consumer business, with mega customers like Proctor & Gamble /zigman2/quotes/202894679/composite PG +1.08% . The segment provides a nice source of recurring revenues. But the company also has business in other areas like chemicals, office products health care.
MeadWestvaco has an overfunded pension, very rare in the manufacturing world. And on top of that it also has massive land holdings, which is a nice source of cash even if the properties aren’t worth what they once were. Read about the most expensive places to live in the U.S. on InvestorPlace.com.
The company /zigman2/quotes/202459264/composite CCK +0.41% is the dominant manufacturer of metal packaging, such as for aerosol and beverage cans. It is a global operation, with an extensive operation in Europe as well as the emerging markets.
The customer base includes some of the world’s largest consumer companies, such as Pepsi /zigman2/quotes/208744353/composite PEP +0.50% and Coca-Cola /zigman2/quotes/209159848/composite KO +0.18% . Of course, they will be consistent sources of revenues for the long haul.
Moreover, with its large footprint in emerging markets, Crown is actually a growth story. This should provide a nice boost to the company’s earnings power.
Crown has also been savvy by using long-term supplier contracts. This has helped to provide lower costs for raw materials like aluminum. Read why commodities will slump and the gold bubble will burst on InvestorPlace.com.
3. Graphic Packaging
This is a top provider of paperboard packaging for food and beverage products. The company has leading positions in coated-recycled boxboard and specialty bag packaging.
In the latest quarter, Graphic Packaging /zigman2/quotes/203517136/composite GPK +0.24% posted a 0.3% decline in sales. But the company was able to increase its pricing to deal with the lower volumes. What’s more, income from operations increased by 15.1% to $68.6 million.
There has been a drag on operations because of bad weather. But this should be temporary and volumes should improve in the coming quarters.
The company develops a wide assortment of packaging products like steel containers and containerboard. There are also services for blending and filling.
Based on the latest quarterly results, Greif /zigman2/quotes/203386038/composite GEF -0.22% has returned to its peak levels for revenue and EBITDA. Then again, the company has a proprietary management approach, called the Greif Business System, which has been helpful in generating cost savings.
The company has also been aggressive with acquisitions; it struck 12 deals last year. Yet in light of Greif’s strong platform and growth prospects, it would not be surprising that it becomes a target for a buyout.
Hilary Kramer, who writes for InvestorPlace.com, does not have a position in any of the stocks named here.