 Good day, fellow investors. Today, I decided to do things a little bit differently. And as many of you always ask me, what's the process behind the research? Today, I will do a start, a four day vlog on a new sector that I'm researching. I'll show everything that I do about the sector, everything that I think about any stock, and you'll see the process of how am I doing this. So we're going to research the timber, wood, pulp, packaging, paper, corrugative paper, sector, see about the stock, see whether there is value. This is a sector that is very cyclical, ups and downs, depending on supply and demand. But the structural long term trend is clear. People are going to consume more and more of those things. We just need to find when something is undervalued and when something is overvalued, then you sell, of course. So an interesting sector, easy to analyze if you know what to look for. And during the blog, I'll discuss what are we going to look for. So I always start, I have done a little bit of research. I have already researched the timber industry somewhere in 2015. So I know a little bit. I was long capstone, paper and packaging before it was taken over. So I know some stocks, I know some reports, I know what's going on, I know the supply and demand. So that's what I know. I'll try to explain it also to you. But the key is, okay, how do I start to research such a sector? I start always with reading a little bit online, finding a list of stocks and then building that list. And this is my list. So it's still incomplete. But I start from here. And then I look, okay, look at the stocks, look at their financial statements, look at their investor presentation and listen or read the conference call. Because the analysts usually answer the questions that you want to know in regards to the competition. If pulp prices go up, you know, okay, pulp stocks and trying to find that balance. So it's now eight o'clock in the morning, I just drove my child to daycare. And let's start digging into these stocks, digging into the research and see where we come out. I'll try to update, I'll try to do a video every few hours as I go along to give you the new insights. Now I'm going to look at the stocks, write a little bit of comments next to them, look at the investor presentation statements and conference calls. So I'm going to work and I'll update you later. So I start with my list of companies. This is the conclusion after a few hours and looking at these seven companies. Some have high debt, some have made a lot of acquisition in a growing sector with high margins, the paper corrugated paper, etc. But the valuations are pretty low. Things seem very stable, expected earnings are very stable, but price to free cash flows of seven nine lead to believe and I have from what the analysts are asking from some reports that have seen that are paid so I cannot show them here. But the expectation is that the margins that have been very, very high in the past will go down. Let me show you what's going on. If I start I started with international paper, the results look good, operating earnings look very good, very high for 2018. The free cash flow stability is always nine to see around 2 billion 1.7 billion. So things are going good. But things could also go much, much worse, like it was the case up till 2010. Now, there is a lot of industry expansion, a lot of potential coming production potential coming online, which might recreate the situation that was there from 2005 to 2010, especially if we have one economic slowdown in the meantime, then you might see this coming back. And this is what the analyst and this is what the market is worried about. And this is why you see those low valuations. So for the company, the analyst and the management are always very much focused on the short term, the pulp prices, the wood prices. So also they have been doing a lot of acquisitions, which makes the company very levered to these small short term changes in prices. And if we see a bigger hit to margins, then such companies like IP also would be very, very hardly hit. The debt is really high 10 billion debt on 23 billion in revenue and 2 billion in free cash flows is pretty high and risky. And they have done that in order to grow, do a lot of acquisitions. Plus also the free cash flow part is a little bit skewed as they have to do big contributions to the pension plan if it's not fully funded, like it wasn't in 2016 and 17, 2018, it was fully funded. But that's another risk that you have to keep in mind. If you're investing, so I would look at what are the return for the pension fund expected ones, what are the differences if they don't hit it, where are they invested and what could be the cash outflows if it is necessary in the future, because those are very significant on this table as I see it. So all in all, the industry earnings per share consolidation, it has been a growth industry, it will probably continue to grow globally. But there are also some headwinds, but more about that later. The stock as it is levered to prices leveraged for acquisition is very volatile, and you can expect always volatility. So the goal of the management from the conference call is to balance that cash and rewards to shareholders. But there is also a lot of rewarding management issuing shares, so they didn't do much with the buybacks. And they say the GDP is not their own measure for performance, but actually it is. So if there is a hit to GDP, there will be hit too. A very good example of how typical Wall Street is really focused on the short term, it's more important that it is sustainable the dividend rather than really increasing or maximizing shareholder returns. They want now 10 years of constantly growing dividends so that they can get into a new, let's say screening and get those dividend investors that like dividend investors. However, I also look they spent 3.1 billion on share repurchases and the number of shares didn't move much. They probably issued shares for acquisitions, not even that much. As I see here what 400 million common stock issued, but a lot of buybacks that didn't change the number of shares much over the last 10 years. So they're really rewarding that management. And there also has been one question on the analyst call about that. So interesting to keep in mind. Also very interesting for a company like this, there is a lot of coverage. So a lot of analysts are following it very interesting. So not really under the radar. And if the market thinks the stock is going down, there might be delays. But the trend isn't that positive as there is more capacity coming online in the US. So too much Wall Street for me. It makes it look stable, but it could be a ticking bomb because of the debt, because of the dividend, if there is dividend cut, which might happen especially if there is a slowdown. So long term high risk investment, this one. Then I looked at Sonoco's stock, just a quick look at the balance sheet, a little bit less risky than IP. However, prices are already going down. You can see here the decline in average is prices per ton, which is very significant. However, Sonoco has much less debt than IP, 30% of sales compared to 50, 45% of sales. The stock is also much more stable. And it is also a little bit diversified around other productions. They have also done buyback and dividends. But this now is a better company, I would say, but also has a much higher valuation with the price earnings ratio of 19 and what the free cash flow, price to free cash flow of 15. The returns are 3.3%, which is the average what they returned to shareholders over the last years. Then we have Westrock, another leader in the paper industry, high debt, a lot of acquisitions. So that those acquisitions lead to a lot of goodwill. So they have five billion in goodwill, which is something to keep in mind when the impairments come. And if we see lower margins, those will come high levels of debt. They have really exploded on the growth side, but they have also increased their debt side. So they give a good sector overview. They expect for future growth, 2% growth, if everything remains stable and the economy remains stable. You can see here the number of acquisitions. So really a big consolidation period in the industry. Consequently, due to the debt, the stock is very, very volatile. What's going on? What's going to happen? Nobody knows. The CEO says that the current price of PULP is not so important. The current prices are not so important because they have long contracts, but current prices set future long-term contracts, which is then again a risk when you look at the long-term. From what I see the industry did really well over the last years. It's still doing very well, but high-past margins, spurred capacity expansions in North America, debt will probably push margins down, especially as the growth in the sector isn't that extraordinary. So we have on one hand Amazon packages, but on the other hand we have less mail, less printing, less everything. So that balances things out. And here we have a good overview from dumpster industries. The PULP industry is growing slowly. Hygiene products also and specialty papers also related to GDP. And here we go back from the same companies there that we discussed. Okay, the valuations are low, but the outlook over the next 10 years from perspective like this is not very positive because you can add capacity. There is no mode. It's not like mining that if you want to mine more copper you have to invest huge amounts because the grade is lower or the copper is deeper. Here you can simply buy the same mill the others have and produce the same things, especially with low interest rates. It's easy to do that. And this is the worry that scares the market. So on my big list I'll simply continue. I have other stocks then we'll look to wood stocks, producers, land, a little bit going to Asia, Canada and then we'll see where we get. All right, the next step was to check the timber owning, the land owning companies. And those are great businesses because when you cannot sell your trees, you let them grow and those usually grow at 2.3% which is the natural growth rate in nature. So if you don't sell them, they grow, you have more of them. If you sell them, you get a good price. Thus, that is a good business stable business value is created constantly either by nature or by dividends. However, similarly, good businesses, everything great many different value creating streams leads to high valuations. We have low single digit and single digit 2.3% growth that you can expect from those companies. And those are there. Weirhauser combination gives you 7.5% return depending on the pension liabilities. So similarly, Canadian companies, I thought, I hope they were owning the trees, but no, they only just saw mills and things like that. So they don't own the land. And that's why they are extremely cheap as they took advantage of the current situation with wood prices, low log prices does high margins from them 40%. But in the past, they have seen margins of 10%, which makes it very, very cyclical. And we'll see if we'll dig deeper. Next step, Asia. All right. So I looked at this Asian company, what those that traded mostly Hong Kong price earnings ratios are round five dividend goes from 1% to 6%, 7%. And the problem is that it has really been a boom in the industry. But now profits are plunging and Shandong paper said that their first quarter profit may plunge 1494 to 96%, which is a significant decline. So we might have seen the peak of the cycle as the Sino US trade wars evolve less demand for the capacity and unfortunately lower earnings. But this is something to dig deeper in. So that might be something that I'll do tomorrow. It's still just 15 to three. So I still have two and a some hours to research until five and then evening. So a very interesting day, a lot of analysis, a lot of reading. And my table is, let's say the first overview is complete. You have a great video on what's going on in the paper industry by Fisher. So here is the YouTube link. It's also in the description below, which, okay, tells you emerging markets, China will India be there are a lot of videos to look there the next China. However, from a mode perspective, a durable competitive advantage, you see that it's all about capital. It's all about investing. It's all about buying those paper mills and then producing into a supply demand market where you depend on costs, input costs and output costs. My conclusion is pretty simple. I would like to have integrated companies that don't depend that much on the volatility are cheap. Thus, again, I have to look at emerging markets. I have to look at nine dragons. I have to look at all the other Chinese stocks. And then I have to see, okay, what are the risks? What are the rewards? The American stocks, North Americans look cheap, but they are really at the top of their cycle, more capacities coming on. There are risky technological improvements that can change things a lot because the thickness on that container board is going down, down, down. So not really a growth story, even if Amazon is packaging growth is growing, growing and growing. Nevertheless, Chinese emerging markets film companies with access to their own internal supplies of pulp will be the best placed competitively going forward, I think. So be careful of higher capex coming in in the future, replacing the older and new companies. It's a shame that the Canadian timber mills don't own the land. So they cannot really leverage on that growth. I have found, so we have to look at the Chinese. And I have found a club in which is a Brazilian producer. I'm really sorry that I missed Fibria, which is a company that I was looking at a few years ago. And it seemed cheap. So perhaps clubbing will be something similar. So I have to analyze for tomorrow. I have to analyze a little bit the Chinese as much as I can, the nine dragons paper industry, which is now looks cheap, but we have to see a lot of what's going on there. And then I want to really analyze clubbing, Brazilian stock, very good investor relations, usually in Brazil. So we have to see their investing for growth, we have to see how are they placed for the long term. And if we can reach our 15% minimum required returns with little risk. So more about this industry tomorrow. I'm learning a lot. It takes time for the research to settle down to really see what's going on, see what you don't know, you have to read constantly reread and see how things are going, what are the risks, what are the rewards, what are the long term competitive advantages, and then at what price you get what value and what is the business return over those cycles that you can expect. So thank you for listening and I'll speak to you in the next video. Looking forward to your comments. If you like what comes out of such research, please subscribe to the channel as usually the videos are the summaries of the research I do in order to find the best possible risk reward investments.