Packaging stocks, although not as fast-moving as their technology counterparts, have outpaced the S&P 500 by about 15% over the past three months amid the industry remaining broadly supported by steady essential end markets such as food, beverages, and health care. Moreover, the huge surge in online shopping during the pandemic has seen e-tailers scramble for cardboard boxes to ship their products.
- The packaging industry remains supported by steady essential end markets such as food, beverages, and health care.
- A golden cross buy signal appeared on the International Paper Company (IP) chart last week.
- The WestRock Company (WRK) price found buying support near the breakout point of an ascending triangle basing pattern.
This trend looks here to stay in the months ahead. Market research site Statista expects the market value of corrugated packaging worldwide to reach $294 billion by 2023, up from $238 billion in 2017. Below, we take a closer look at two of the largest publicly traded stocks within the group and analyze the charts to identify possible trading opportunities.
International Paper Company (IP)
International Paper manufactures paper and packaging products through three segments: industrial packaging, global cellulose fibers, and printing papers. Although the $10.24 billion company reported a 33% decline in second quarter earnings, the reported figure of 77 cents per share came in well ahead of the Street's estimate of 38 cents per share due to strong demand for corrugated packaging driven by e-commerce during the coronavirus pandemic. The box maker strengthened its packaging business earlier this year when it increased its stake in a sheet feeder plant to bolster its containerboard solutions. As of Sept. 28, 2020, International Paper stock has fallen 7.28% year to date but gained over 20% since late June. Investors also receive an enticing 5.23% dividend yield.
The share price has traded within a steady but slow uptrend since bottoming out in March. Furthermore, the 50-day simple moving average (SMA) crossed back up above the 200-day SMA last week to generate a golden cross buy signal. Traders who enter on Friday's rally on above-average volume from a multi-month horizontal trendline should look for a test of the 52-week high around $47.50. Protect capital by cutting losses if the price fails to hold above intermediate support at $38.30.
In technical analysis, a horizontal line is often drawn on a price chart to highlight areas of support or resistance.
WestRock Company (WRK)
With a market capitalization of $9.30 billion, WestRock manufactures and sells paper and packaging solutions in the Americas, Europe, Asia, and Australia. The Atlanta-based cartons and paperboard maker posted an adjusted third quarter profit of 76 cents per share on revenues of $4.2 billion. While the company's bottom line delivered a 73% earnings surprise, sales came in $121 million below what analysts had expected on the back of softness in the firm's corrugated and consumer packaging businesses. The company's Injectapak pharmaceutical packaging that houses a series of syringes or vials places it in a position to negotiate a possible deal with firms that develop a successful COVID-19 vaccine. WestRock stock offers a 2.42% dividend yield and is trading 35% higher over the past three months as of Sept. 28, 2020. Year to date, the shares have declined 14.53%.
Price broke out of a broad ascending triangle basing pattern on increasing volume in mid-September before retracing to the initial breakout point last week. Bulls rushed back into the stock at this level, which also finds support from the 200-day SMA. Swing traders who enter here should think about setting a take-profit order near the early January high at $44.39 while managing risk with a stop placed just below the triangle pattern's upper trendline at $32.80.
A take-profit order (T/P) is a type of limit order that specifies the exact price at which to close out an open position for a profit. If the price of the security does not reach the limit price, the take-profit order does not get filled.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.