Dow Stocks: Don’t Chase This Dow
Stock
The Dynamic Wealth Report
January 14, 2011
by Robert Morris, Editor
With the Dow Jones Industrial Average closing in on 12,000,
you’re probably looking at more than a few Dow stocks to add to your
portfolio. And why not? Given the strong outlook for corporate earnings
growth this year, many Dow stocks are bound to provide nice gains in
2011.
I too have been taking a closer look at Dow stocks. And I’ve found
several offering solid growth potential and a healthy dividend to boot.
However, there’s one Dow stock you should avoid like the plague…
International Paper (IP).
-------------Sponsor-------------
Where Can You Turn $300 Into $1.3 Million Right Now?
Our own small-company specialist, Robert Morris, has found a
way to 'sniff out' tiny penny stocks on the verge of a major breakout. And
the timing for this has never been better.
You see, the system takes advantage of an obscure SEC regulation that
sends penny stock prices through the roof.
We've seen some stocks gain 852%... 5,450%... even 17,496% in no time
flat.
Click here
for the details...
-----------------------------------
TIP is a diversified paper and packaging company with operations in
North America, Europe, Latin America, Russia, Asia, and North Africa. They make containerboard, uncoated freesheet printing paper, and coated
paperboard products. And they own and manage 200,000 acres of
forestlands in the US.
At first glance, IP looks like a safe growth play for 2011.
Last quarter the company posted record earnings thanks to price
increases and restructuring benefits. Earnings estimates for 2010 and
2011 have been moving higher. And earlier this week, IP bumped their
dividend by 50%.
What’s more, the shares have been on a tear.
Since hitting a low of $19.33 in late August, the shares have been
moving higher in a solid uptrend. Yesterday the shares closed at $28.87
for a terrific 49% gain off the August low.
Sounds great right?
Not so fast.
If you dig a little deeper, you’ll see some dangerous cracks in the
foundation of this seemingly solid stock. The one I’m most concerned
about involves the company’s Printing Papers business.
This important business segment accounts for about 24% of sales and 22%
of operating profits. They provide uncoated freesheet printing papers
used in books, magazines, newsprint, and envelopes.
While Printing Papers had strong performance in 2010, I see demand
dropping like a stone.
E-readers and tablet PCs are rapidly replacing printed books and
magazines. Demand for these hot, new gadgets is off the charts. Gartner
estimates sales of tablet PCs will more than triple in 2011. And they’re
projecting sales of e-readers will jump 68%.
Want proof… just look at recent sales numbers for Apple’s iPad and
Amazon’s Kindle.
What’s more, a recent survey by JP Morgan shows an astounding one-third
of all internet users plan on buying an e-reader.
This makes perfect sense.
Why spend a fortune on printed books when you can get e-books for a
fraction of the price? And you can store thousands of e-books on a tiny
device that fits in your pocket.
As demand for e-books grows, publishers are sure to cut back severely on
the amount of paper used to print books and magazines.
What’s more, the latest figures from the US Postal Service show e-mail
is continuing to push snail mail toward extinction. Last year, the
Postal Service lost a stunning $8.5 billion. That comes after losses of
$3.7 billion and $2.8 billion in the previous two years respectively.
The huge losses stem from a steady and steep decline in mail volumes.
Since 2006, mail volumes have dropped a whopping 20%!
More people are using email, facebook, skype, text messaging, and other
electronic means to communicate. Snail mail is clearly going the way of
the dinosaurs.
This means demand for paper and envelopes should decline steadily for
years to come.
As you can see, these powerful trends in new technology are lining up to
deliver a death blow to IP. And with IP shares trading just under their
52-week high, now is not the time to chase this stock.
In my opinion, these shares are way overvalued.
IP’s earnings are projected to grow at a meager 2.5% a year going
forward. But the stock is trading at a P/E of 14x the 2010 estimate and
more than 10x the 2011 estimate. How does a company with such anemic
growth deserve a P/E anywhere near the market average?
The short answer… it doesn’t.
These shares are ripe for a major sell off. If you’re looking for a good
Dow stock to add to your portfolio, don’t waste your time with IP right
now. This is one paper stock on the verge of getting shredded.
• Alcoa (AA) was upgraded by
Dahlman Rose from Hold to Buy with a $22 price target. The aluminum
giant sees demand rising 12% this year and doubling by 2020.
• Jefferies downgraded SAP (SAP) from Buy to Hold. The business software maker recently said the verdict in a copyright
infringement lawsuit filed by Oracle will have a significant negative
impact on operating profit and margins. SAP was ordered to pay $1.3
billion plus interest to Oracle.
• Hudson Securities rolled out coverage on a couple of cruise line
stocks. They started Royal Caribbean (RCL) at a buy and
Carnival (CCL) at a hold. With strong earnings
projections for 2011, RCL has nice upside potential. But at current
prices, CCL looks reasonably valued.
Print
Page
Bookmark Us
Home | Whitelist Us |
Terms of Use |
Privacy Policy |
Contact Us | Security |
Site Map