TIS the Season for Recession-proof Investments
12/04/2015 9:00 am EST
Investors tend to seek out the bare essentials and investments with above-average dividend yields to help increase income during a potentially tumultuous time for stocks, and Matt McCall, of Penn Financial Group, thinks this company that sells and manufactures paper and tissue products fits the bill.
When investors begin to think about goods and services that are recession-proof they often defer to healthcare and the bare essentials. Falling into the latter category is toilet paper and tissue products. Investors also tend to seek out investments with above-average dividend yields to help increase income during a potentially tumultuous time for stocks.
A company that fits the bill of both criteria is Orchids Paper Products Company (TIS). The company sells and manufactures paper and tissue products for use in home and away from home markets. The brand names for their toilet paper, paper towels, and napkins include Velvet, Linen Soft, Colortex, and more. The company was founded in 1976 and serves grocery stores, wholesalers, and janitorial supply stores.
Fundamentally the stock is starting to turn things around after earnings took a hit in 2014. The company earned $1.11 per share in 2014, a drop of 36% from the prior year, but the number is expected to jump to $1.43 this year. Based on a forward P/E ratio of 16.7 and average EPS growth of 30% over the next three years, the PEG ratio comes in a 0.56, which is extremely undervalued.
The bottom line growth should continue in the next few years with the 2016 estimate at $1.83 and by 2018 the five analysts covering the stock predict earnings of $3.05 per share. If the stock can trade at a very modest 15 times earnings it would put the stock at nearly $46/share in 2018, a gain of 56% from the current price.
Adding to the attractiveness of the stock is the 4.6% dividend yield. With the yield on the 10-year Treasury below 2.2%, any yield above 4% should be considered a bonus that will certainly help boost overall portfolio performance.
From a technical perspective the stock has been forming a bullish pattern after rising to a new 52-week high in October. Since breaking above resistance at the $29 area, the stock has been gyrating between $29 and $31. As long as the stock holds the $29 area it will be within a bullish short-term and long-term trend. A break above $31 would be a major buy signal that should be the beginning of the next big uptrend higher.
Matt McCall, Founder and President, Penn Financial Group