Although not the most exciting stocks for traders to play due to their low betas, packaging stocks still present profit potential from time to time – and the lead up to year end may be one of those times. The industry provides investors some level of protection against a possible 2020 economic downturn, given its exposure to non-cyclical end markets such as food, beverages, and health care. Moreover, increasing demand from developing countries like China and India continues to offer growth opportunities.
As the holiday season approaches, the group may also receive a flurry of additional analyst coverage, discussing how events like cyber Monday – an event created by retailers to encourage online shopping on the Monday after Thanksgiving – creates more need for corrugated shipping boxes and other packaging materials. Meanwhile, longer-term demand looks promising, with global e-commerce retail sales expected to increase 184% from 2017 and 2022, according to market research site Statista.
From a charting standpoint, the three packaging stocks discussed below look nicely positioned to move higher into the end of the year. Let's have a more in-depth look at each name and explore several enticing trades on offer.
Ball Corporation (BLL)
With a market capitalization of $22.11 billion, Ball Corporation (BLL) supplies metal packaging products to the beverage, personal care, and household products industries. Although the packaging giant missed analysts' third quarter (Q3) earnings forecasts, its bottom line grew 25% from the year-ago quarter. Revenue also increased slightly year over year (YOY), benefiting from a 4% increase in global beverage can volumes and a 9% improvement from its aerospace segment. Furthermore, the company's aerospace tactical unit has secured contracts worth $4.5 billion since the end of Q3 2019. Trading at $67.59, the stock has returned 47.87% on the year, outperforming the packaging and containers industry average by almost 25% as of Nov. 19, 2019. Investors also receive a 0.91% dividend yield.
Ball shares added most of their year-to-date (YTD) gain between January and August. However, since setting a 52-week high in early September, the stock has undergone a steep 22% retracement. Over the past week, buyers have returned at $65, where the price encounters crucial support from the May swing high and 200-day simple moving average (SMA). Also, the moving average convergence divergence (MACD) line crossed above its signal line in Monday's trading session to confirm shifting sentiment. Those who enter here should think about booking profits near the 52-week high at $81.88 and placing a stop-loss order underneath this month's low at $63.52. Consider raising the stop to the breakeven point if price closes above the 50-day SMA.
Sealed Air Corporation (SEE)
Sealed Air Corporation (SEE) provides food safety and protection solutions globally. The $5.92 billion Charlotte, North Carolina-based firm's food care division manufactures meat food packaging products including Cryovac, Darfresh, and OptiDure. In May, the company announced that it agreed to acquire Automated Packaging Systems, Inc., a leading manufacturer of automated bagging systems, for $510 million. Management expects the deal to bolster growth in e-commerce, fulfillment, and food packaging markets.
The firm posted Q3 adjusted earnings of 64 cents per share, topping the Street estimate by a penny. The figure represents a 5% improvement compared to the September 2018 quarter. KeyBanc recently upgraded Sealed Air stock to "sector weight" from "underweight," citing the company's valuation – it currently trades at about 12 times projected 2020 earnings versus the industry average multiple of roughly 16 times. However, the investment advisory firm noted high leverage and regulatory investigations as remaining risks. Sealed Air stock yields 1.68% and has returned 11.37% YTD as of Nov. 19, 2019.
The company's share price has oscillated within a four-point wedge since early May. A decline to the pattern's lower trendline at $38 provides swing traders with an attractive buying opportunity near technical support. Those who act should set a take-profit order near the wedge's top trendline at $42 and limit downside risk with a stop order placed just beneath the formation's lower trendline at $38. The trade offers a favorable risk/reward ratio of 1:11 ($3.68 profit per share vs. 33 cents per share), assuming an execution at Monday's $38.32 closing price.
WestRock Company (WRK)
WestRock Company (WRK) manufactures corrugated and consumer packaging, such as containerboard boxes and folding cartons. It also operates recycling facilities that sort and bale recovered paper. The company, which provides packaging solutions to customers in the Americas, Europe, and Asia, disclosed fiscal Q4 2019 earnings of $1.24 on total sales of $4.65 billion. The top line grew 9.8% on a YOY basis, aided by a 19% increase in corrugated packaging sales. As of Nov. 19, 2019, WestRock stock has a market value of $10.30 billion, offers a healthy 4.65% dividend yield, and trades up nearly 11% so far this year.
The stock has traded sideways throughout most of 2019, with a double bottom forming over the summer months. More recently, the price has risen above a vital level of horizontal resistance at $39, indicating further gains into year end. In another encouraging chart development, the 50-day SMA crossed above the 200-day SMA in early November to generate a "golden cross" buy signal. Traders who enter at current levels should initially look for a test of a significant resistance at $44.75 before a possible run to $51.25. Cut losses if price closes below previous resistance at $39, which should now act as support.