Paper and forest products have yet to join the bull run because the housing slump is hampering sales. But one, Louisiana-Pacific (LPX ), has jumped ahead. It's up from 18 in September to 23.33 now, buoyed by rumors that it's a buyout target and by "signs of a bottoming" in homebuilding. Michael Metz of Oppenheimer (OPY ) says this is the time to buy, adding: "LPX is very attractive to private equity groups who are eyeing it as a leveraged buyout because of its assets and cash." Metz figures LPX is worth more than 27 in a deal. Bank of America (BAC ), which owns LPX shares and recently upgraded the homebuilding group, increased its rating on LPX from neutral to buy and raised its 12-month target from 24 to 25. LPX is the world's top producer of oriented strand board (OSB), a cheaper alternative to plywood. It also makes siding. BofA's George Staphos says the upgrade is based on several factors, including a sum-of-the-parts/replacement value, and a buyout model. Staphos says new capacity could add pressure on the industry, but any drop in the stock price should be a chance to buy. Improving industry conditions, plus LPX's cash of $1.2 billion "provide downside protection," says Staphos.
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial