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These Companies Can Box Their Way Out of a Corner

COVID-19 has taken a toll on containerboard producers, but we see opportunity.

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Containerboard profit margins surged amid limited supply and robust demand growth from 2016 to 2018, and management teams seized the opportunity to convert a host of mothballed paper mills to containerboard production, as we expected. The industry is now staring down a wall of capacity growth not seen in decades. Meanwhile, the coronavirus pandemic has ravaged box demand. Opportunity has turned into threat, and the containerboard companies have a fight on their hands.

Hard decisions lie ahead, but we believe the companies we cover will rise to the challenge: All three generate plenty of cash and have wisely avoided overindulging in debt during good times. Furthermore, all three possess low-cost assets that should weather the storm to see brighter days and wider margins.

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Charles Gross does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.