Get Ready For This Paper Chase

Some money pros now veering toward the cyclical groups are zeroing in on paper stocks. Consolidation is firing up the industry, says James Flicker, a Lehman Brothers analyst. Fundamentals are starting to look better and a lot of restructuring is going on. But in his assessment, mergers and acquisitions make up the most important trend evolving in the group.


"The industry desperately needs consolidation as returns have languished for decades due to various structural impediments to profitability," says Flicker. He says about nine companies will consolidate. Topping the list: Rayonier (RYN), a forest products company engaged in trading, merchandising, and manufacturing wood products. It owns or controls 1.5 million acres of timberland in the U.S. and New Zealand.

Trading at 47 a share, Rayonier's timber alone is worth 60, says Perry Roth, an analyst at Value Line. He expects earnings of $2.85 this year and $3.75 next year, vs. $2.63 in 1996.

One New York investment manager figures that in a buyout, Rayonier is worth 80, based on two and a half times its estimated book value of 32 a share. This pro thinks a foreign forest-products company has expressed an interest in Rayonier.

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