Traders shouldn't forget about slow-moving packaging stocks. As a growing number of coronavirus infections across many parts of the country threatens to derail the economic recovery, the packaging group may see renewed buying interest as investors turn to recession-proof names that can ride out a longer-than-anticipated downturn.
Consistent pandemic-essential end markets in food, beverages, and health care ensure steady demand for packaging manufacturers into the second half of the year. Furthermore, consumers are likely to continue buying products online as they spend more time at home, increasing the need for cardboard packaging used for secure shipping. Indeed, market research portal Statista expects U.S. retail e-commerce sales to reach $475 billion in 2021, up from $365.2 billion in 2019.
Below, we review three of the largest publicly listed packaging stocks before turning to the charts to identify possible trend trading opportunities.
Packaging Corporation of America (PKG)
Packaging Corporation of America (PKG) manufactures and sells containerboard and corrugated packaging products used to protect goods during shipment. It also provides packaging solutions for meat, fresh fruit and vegetables, processed food, and beverages. The $9.3 billion packaging giant delivered a first quarter earnings surprise of 25% on the back of higher volumes and lower operating costs. Packaging Corporation stock issues an enticing 3.3% dividend yield and is trading almost 15% higher over the past three months as of June 30, 2020. Year to date, the shares have slipped 11.06%.
Since plunging into the low $70s at the height of the pandemic selloff, the share price has trended higher in choppy trade. A recent retracement to the blue dotted trendline and 50-day simple moving average (SMA) provides a high-probability entry point for swing traders to join the uptrend. Those who buy at these levels should consider placing a stop-loss order beneath the $93.38 low and book profits on a retest of major horizontal line resistance around $111.50.
Graphic Packaging Holding Company (GPK)
Graphic Packaging Holding Company (GPK) provides paper-based packaging products to customers in the food, beverage, and consumer products industries. The Atlanta-based firm reported first quarter adjusted earnings of 31 cents per share, easily topping analysts' expectation of 25 cents per share. Despite the uncertain operating environment, management has reassured investors that the firm remains committed to returning capital through dividends and distributions. Wall Street analysts have a 12-month consensus price target on the stock at $16.54, representing a 20% premium to Monday's $13.74 close. As of June 30, 2020, Graphic Packaging shares offer a 2.26% dividend yield and have climbed 16.88% since late March.
Buyers have defended the $13.50 area in recent sessions, where price finds vital support from a trendline extending back to the March 23 low. Before taking a long position, traders may decide to wait for the moving average convergence divergence (MACD) indicator to cross above its trigger line to confirm improving sentiment. Those who do enter here should set a take-profit order near crucial overhead resistance at $15.30 but exit if the stock reverses beneath this month's low at $13.
Sealed Air Corporation (SEE)
Sealed Air Corporation (SEE) provides food safety and security packaging solutions through two business segments: Food Care and Product Care. The maker of Darfresh vacuum skin packaging and Jiffy mailers saw its bottom line increase 24% in the first quarter, with higher volumes and favorable margins contributing favorably. From a valuation standpoint, the $5.06 billion company trades at around 12 times projected earnings, significantly below its five-year average multiple of 16.5 times. Sealed Air stock has gained 32% over the last three months, outperforming the packaging and containers industry average over the same period by nearly 7% as of June 30, 2020.
The shares pared about half of their pandemic loss between mid-March and early April but have drifted mostly sideways since. However, a breakout above a two-week consolidation period in Monday's session may tempt buyers from the sidelines in the weeks ahead. Those who trade the stock should look for a move back to $38 – an area on the chart that encounters resistance from a 12-month horizontal trendline. Manage risk by placing a stop under the 50-day SMA and amending the order to the breakeven point if price closes above the June high at $36.15.