Every investor is looking for the next great stock story…

But guess what?

You don’t have to.

In my decades in the markets, I’ve proven that it doesn’t matter what a company does.

As long as it’s good at what it does… and I can buy low and expect a high probability of selling high… then I don’t care what the story is.

And that’s exactly how you should look at this week’s Stock of the Week.

You might think a paper producer should be extinct these days… but this company – and its numbers – would prove you wrong.

Get all the details – including the ticker – in my latest Stock of the Week.

Click on the image below to watch it.

Transcript

Hi everyone, I’ve got another fantastic Stock of the Week for you this week.

It’s not one of the audience-requested ones… It’s one of mine.

As you know, I’m Alpesh Patel, a hedge fund manager. And me and my team, we analyze companies across a lot of metrics, all for my GVI Investor research service. (It’s well researched, that newsletter.) And what these Stock of the Weeks are there for is to give you a tip-of-the-iceberg taste of the kind of research we do.

So this week’s stock is Sylvamo (NYSE: SLVM). It’s engaged in manufacturing bulk paper as well as raw pulp materials.

I bet you didn’t expect that, did you? I bet you were expecting energy or technology.

Well, hear me out, because quite frankly, all companies – whether in energy or technology – are factories for making money. If they can do it well, and they’re efficient and productive, and the rest of the market hasn’t appreciated how good they are at their jobs, then their stocks are worth buying.

If they’re not good at manufacturing money and they’re not productive and they’re not efficient – or even if they are all those things and the market has overestimated or overhyped how good they are – then they’re not worth buying.

So I don’t actually care what a company does, as long as it’s good at it and I can buy low and I expect with a high probability to sell high.

Let’s have a look at this company in more detail. It, as I said, produces market pulp, something called aseptic and liquid packaging board, and unbleached craft papers as well. It offers copy and printer papers, commercial printing papers.

Again, you might think, “Hang on, Alpesh. Everything’s going digital. Who the heck needs paper anymore?”

Well, that’s one of the reasons some of these companies can be underappreciated. They’re in a niche area, they’re growing, they’re overlooked. All the reasons that, again, you might have prejudices and biases against companies using paper.

Sylvamo has generated fantastic capital gains and posted solid first quarter of 2022 performance as well. (And I’m going to look at some of those numbers in a second.)

And whilst they’ve – as a result of the Russian situation – left Russia, I don’t think that’s going to impact them negatively.

So what are some of the things that I really liked? Well, one was the cash return on capital invested. It looks like it’s the kind of company where the capital has been invested, and you can just keep using those manufacturing materials. You don’t need to keep buying new machinery constantly. Obviously, there’ll be some repairs and so forth.

So overall, I like it, and I like what I see with the company. Let’s get those numbers in a bit more depth.

Cash return on capital invested… Remember, I’m always going on about this. One of the reasons is it’s the formula invented by Deutsche Bank and used by Goldman Sachs Asset Management for their richest clients to work out which stocks are going to be outperformers. And the companies in the top quartile, the top 25% of all companies by cash return on capital invested, tend to produce some outstanding returns over the years.

Return on equity… 28.9%. Turnover looks good, expected to grow. Earnings are expected to grow as well. Forecast price-to-earnings… only at a 6 multiple.

So the market’s not forecasting a strong price-to-earnings ratio. It’s basically underestimating the other growth factors.

Given that you’ve got turnover expected to rise, earnings expected to rise 22%, the market’s only forecasting a price-to-earnings ratio of 6. And that seems somewhat undervalued because what should be happening with something with forecast growth at those numbers is you should be getting a higher price-to-earnings multiple than you’re getting, which suggests that the price will go up – all other things being equal.

In terms of operating cash flow, fairly steady. Yes, borrowing’s gone up, but then again, it’s not impacted negatively on pretax profits.

They’re holding fairly steady, a few little bumps. But there’s nothing which I can see which should say, “Ooh, watch out. What’s going on?”

One of the other things which is particularly interesting, which I’ve liked, has been actually the monthly performance of the stock. It’s not very volatile. It’s holding steady and climbing, holding steady and climbing. That’s good.

And when I look at the monthly, what I call the MACD – the moving average convergence divergence – as well, it shows upward momentum on a longer-term monthly chart.

So a lot of things ticked off for us. I like it, and that’s why I wanted to talk about it as my Stock of the Week.

Thank you very much.