Domtar Corp. (UFS-T)

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%.

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.

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.

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.

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.

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.

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.

There are better things to do. He has almost a zero weight in US housing. Stocks are not performing.

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.

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.

If you own, he would be inclined to take a little profit. The big mover for this company has always been uncoated free sheet where pricing is starting to come under a little bit more pressure. Cdn$ has come under a bit of pressure lately, which is always a benefit for this entire sector.

Structured very well in the industry. Positioned very well to capture some market share in the short and the long-term. This is a company you are going to be able to ride for the next 24 months.

Primary product is paper. Currently looking at this company.

Likes the high free cash yield. Paper business is not a growth business these days with people doing more and more online but it is a business that can generate a lot of free cash. They are trying to expand and grow into the adult diaper business and have done a number of acquisitions. Last few quarters have been disappointing. If the stock had a decent pop from here, that might be a reason for him to lighten up.

(Market Call Minute.) We are all using more paper than we ever did before. Might not be an unreasonable thing to own right now.