Newsprint Sector Will Reward the Patient

Sometimes the most beautiful ideas can come from the ugliest places. At least, one can only hope that's the case when it comes to the newsprint sector.

Few cyclical groups have performed as badly as newspaper stocks. Even though the Dow Jones Forest Products and Paper sector in general is neck-and-neck with the 2% return on the S&P 500 so far this year, shares of North America's largest newsprint producers -- Abitibi-Consolidated(ABY Quote) and Bowater(BOW Quote) -- have been a bust. Since the beginning of this year, Abitibi's shares are down 17%, while Bowater's shares have lost almost 11% of their value.

Lagging Recovery

With the economic recovery having been clearly in place for several quarters in a row now, the market appears to have lost patience waiting for demand to pick up in the newsprint sector. But based on past cycles, recoveries in newsprint typically lag not only growth in gross domestic product, but also a turn in other paper markets, according to a recent report by Raymond James Canada-based paper analyst Daryl Swetlishoff. ...