5 Flyover Stocks on My Radar
Here are some companies with attractive qualities that are on my watchlist for profiling at Flyover Stocks
A habit I learned from my wife’s grandfather is to hang onto all the extra nuts, bolts, and screws that I harvest from old projects and leftovers from new projects.
The practice of accumulating these fasteners has come in handy more times than I can count. It’s saved me many trips to home improvement stores.
Similarly, the more companies you review and keep in your mental storage shed, the less energy you’ll have to expend searching for new ideas. Looking for new ideas and starting company research from scratch requires a lot of mental horsepower that can come at the expense of other important projects.
Here are five short profiles of companies that I keep an eye on and what keeps me from investing in them at the moment.
Packaging Corp. of America (PKG): PCA is North America's third-largest producer of containerboard and corrugated products (e.g., cardboard boxes). Its narrow economic moat is rooted in a low-cost production advantage that stems from its unique and economically irreplaceable virgin-fiber containerboard facilities, as well as its network of box plants. Over time, recycled cardboard ("OCC" or old corrugated containers) material deteriorates, and the industry needs a steady supply of virgin fiber material to enter the system. Virgin fiber mills are prohibitively expensive to build, and municipalities and environmental groups oppose their construction. Management has long kept a tidy balance sheet and pays an attractive, well-covered, growing dividend. Roughly half of North America demand for corrugated products is from the food, beverage, and agricultural industry. At $154 per share and 18x forward earnings the stock doesn't scream a bargain, but it's one to keep on the radar.
Johnson Outdoor (JOUT): Led by CEO Helen Johnson-Leipold, a fifth-generation member of the S.C. Johnson family, Johnson Outdoor shares are trading toward the bottom of most of its ten-year multiple ranges. The company, which makes outdoor products for camping, fishing, diving, and water sports, has been sorting through a post-COVID slowdown in demand. The balance sheet is debt-free, and the Johnson family retains a majority ownership and voting position, meaning the company has the "capacity to suffer" through the downturn and potentially emerge stronger than before. On the other hand, the size of the family ownership may mean the company is run too conservatively and their interests and motivations may be different than those of non-family shareholders. My biggest concern is the moat - or lack thereof. Returns on equity are middling and hover around or just above the cost of capital, on average, over the past decade. There may be some brand advantages among its niche sporting products, but they are limited growth-wise. Still, the combination of family ownership and balance sheet strength makes it an interesting name to follow.