David Burrows Domtar Corp. UFS-T DON'T BUY Jul 24, 2014

Companies that are more sensitive to the economic cycle will tend to have a cooling period over the summer (May to Oct). That is ‘sell in May and go away’. Some companies have an inverse correlation. Coming out of cyclicals, money goes into counter-cyclicals. ‘Sell in May and go away’ works 60% of the time. A gap up in UFS to $113 recently. If we go below that you should take money off the table or buy a put.

Has been able to reinvent itself, and focus on the consumable areas. This is going to be a positive on a go forward basis in terms of their operating margins. However, he would like to see proof in the pudding.

Looks cheap statistically. He is concerned about their growth going forward. Does not know how they compete against P&G in terms of adult incontinence products, which is where growth would be. They are spinning out some assets and that could give the stock a boost.

This intrigues him. The stock has been pretty steady. It is in US dollars. It has a nice switch going on, gently into consumer product materials, away from trees. Nice dividend of 3.72%. There is some serious talk about turning part of it into an MLP in the US. Thinks this one is reasonably safe here.

Forest product stocks are somewhat out of favour. On the pulp and paper side, this was an industry that used to sell a huge amount of paper to the newspapers, and recycling had taken a lot of that away. It doesn’t look like that is going to change. The yield is okay and is reasonably safe. He wouldn’t look at this as having much growth potential. There are other places where you can get growth and the same dividend yields.

Chart shows it has traded in a very wide band. He is always a little cautious of a stock that has a very wide, loose trading pattern, because it means the relationship between buyers and sellers is pretty loose. In forest products, he prefers to aim more at the lumber company part of the business, such as Louisiana Pacific (LPX-N), which is really levered to the US housing market. There is something like 9 million people living in their parents’ basements, who have failed to launch at this time, but who will become homebuyers.

UFS-N vs. KMB-N. UFS-N has a nice balance sheet that is well protected and a dividend north of 4%. It is a well run company with a defensible market share when you look at some of the fast growth markets they have been trying to address like Asia. They have been keen to ramp up their exports to Asia. He would refer UFS-N at these valuations.

It has strong seasonality. Mid Oct through until April of each year. Look for it to move higher. It is testing a key resistance level. If it moves above it, it will then go on to test the next resistance level.

This has been quite erratic and trading in quite a wide range. He’s been seeing contraction in breadth in forest companies, so is a little cautious on this area. If he had to focus in one space, it would be on lumber which looks attractive. You can use a basket of them through the ETF Guggenheim Timber (CUT-N). Dividend yield of 4.4%.