4 Paper and Related Products Stocks to Watch in the Thriving Industry

Industry Overview - The Zacks Paper and Related Products industry is poised for growth due to increased packaging needs driven by rising e-commerce activities and sustained demand from consumer-oriented sectors like food, beverages, and healthcare [1][3] - The industry's growth is supported by a consumer shift towards paper as an environmentally friendly packaging option amid growing environmental awareness [1] Major Trends - E-commerce is significantly boosting packaging demand, with global e-commerce sales projected to grow from $5.8 trillion in 2023 to $8 trillion by 2027, representing a CAGR of 8.4% [3] - E-commerce accounted for nearly 19% of retail sales worldwide in 2022, expected to rise to 25% by 2027, with the U.S. leading this growth [3] - The demand for sustainable and eco-friendly packaging solutions is increasing, prompting the paper industry to incorporate recycled content and invest in breakthrough technologies [4] Challenges - The transition to digital media is negatively impacting the graphic paper market, leading companies to convert production lines to focus on packaging and specialty papers [5] Industry Performance - The Zacks Paper and Related Products industry ranks 30, placing it in the top 12% of the 252 Zacks industries, indicating bullish prospects [6][7] - Over the past year, the industry has gained 14.9%, outperforming the Basic Materials sector, which lost 1.4%, but lagging behind the S&P 500's growth of 25.4% [8] Valuation Metrics - The industry is currently trading at a trailing 12-month EV/EBITDA ratio of 7.11X, compared to the S&P 500's 13.80X and the Basic Materials sector's 11.01X [9] Key Players - Suzano: Recently acquired Kimberly-Clark's tissue assets, enhancing its position in the domestic market. The company is investing in projects to boost production capacity, including a $2.8 billion Cerrado Project expected to increase pulp production by 20% [11][12] - Klabin: Achieved a total sales volume of 961,000 tons in Q4 2023, with significant investments in new paper machines and forest operations to enhance self-sufficiency [14][15] - Sappi: Focused on expanding dissolving pulp capacity and reducing exposure to graphic paper markets, with a long-term earnings growth estimate of 13.6% [17] - International Paper: Investing in capacity expansion for corrugated and containerboard packaging, achieving $260 million in year-over-year earnings improvement in 2023 [19][20]