Analyst Actions: Weyerhaeuser, Sappi, KPMG Consulting, Williams Energy

Some people can't see the forest for the trees lately, staring at a massive tech selloff and missing the overall picture. Lehman Brothers came out with some guidance this morning for investors who are looking for something new to look at. Peter Ruschmeier, an analyst covering the often-overlooked paper and forest products sector, told investors that he was bullish on wood, which has outperformed the market lately.

Pointing out that the Philadelphia Stock Exchange Forest & Paper Products Index, which tracks the sector, has outperformed the S&P 500 by 62% since October, Ruschmeier said the good times could continue. Historically speaking, after overcoming a bear market, as paper stocks did at the end September 2000, a bull market in paper stocks should last 37 months, with outperformance of 37% a year.

"By almost any measure, paper companies have endured their worst bear market since the Great Depression," Ruschmeier wrote. "The most recent bear market in shares lasted from September of 1994 to September of 2000, for a total of 73 months."

Citing a rise in capital efficiency and a bottom in pricing, the analyst said valuations on many paper stocks are attractive. More specifically, Ruschmeier called Weyerhaeuser (WY Quote) his favorite large-cap pick.

"We give Weyerhaeuser's management the highest rating of the large-cap companies in our universe," he wrote, suggesting that the company's timber interests warrant a higher valuation than other companies, since building products are among the first things to pick up when the economy improves.

Oh, and Ruschmeier was a fan of Weyerhaeuser's attempt to merge with Willamette (WLL Quote), saying that he thought it would go through and boost earnings and cash flow.

Sappi (SPP Quote), Georgia Pacific (GP Quote), Mead (MEA Quote) and Louisiana-Pacific (LPX Quote) were also touted as strong buys, along with Weyerhaeuser.

Sappi was called a "top pick," as American investors have been embracing the company and South African investors have been exiting it. With that selling pressure weakening, the analyst argued that Sappi would benefit, since it currently trades at 5.6 times earnings.

Upgrades

Capstone Turbine (CPST Quote): UP to strong buy from buy at Credit Suisse First Boston.

City National (CYN Quote): UP to strong buy from buy at Lehman Brothers.

Engelhard (EC Quote): UP to strong buy from buy at Lehman Brothers.

Downgrades

Dover (DOV Quote): DOWN to market perform from U.S. recommended for purchase list at Goldman Sachs.

Federal-Mogul (FMO Quote): DOWN to market underperform from market perform at Lehman Brothers.

Pivotal (PVTL Quote): DOWN to market outperform from U.S. recommended for purchase list at Goldman Sachs.

Vignette (VIGN Quote): DOWN to hold from buy at ING Barings.

Initiations

KPMG Consulting (KCIN Quote): NEW market outperform at Goldman Sachs.

Rent-A-Center (RCII Quote): NEW buy at Lehman Brothers; price target: $52.

Williams Energy Partners (WEG Quote): NEW strong buy at Lehman Brothers; price target: $33.