Every Monday we feature “A Stock to Sell” as our daily post. With every stock we recommend as a sell, we give you a full explanation of why we advise against investing in the stock at this time.
Domtar Corp. (symbol UFS on Toronto; www.domtar.com), is among North America’s largest producers of paper (sold in huge rolls), with an annual capacity of about 3.4 million tons.
The company is also a significant producer of market pulp, and it has diversified into the personal care industry by making diapers for adults and children.
In the three months ended June 30, 2014, Domtar’s revenue rose 5.6%, to $1.39 billion from $1.31 billion a year earlier. Excluding one-time items, earnings per share jumped to $0.61 from $0.24.
Domtar holds cash of $85 million, or $1.31 a share. Its $1.4 billion of long-term debt is a high 58% of its $2.4-billion market cap.
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Stock investing tips: Domtar looking at acquisitions in personal care to reduce exposure to pulp and paper
The stock trades at 12.0 times this year’s forecast earnings of $3.15 a share. It yields a high 4.5%.
Domtar plans to keep expanding into new areas to offset its exposure to the cyclical pulp and paper industry. That will likely include acquisitions in the personal care area.
But it’s far from certain that whether the company can profitably undertake this change, especially as rising imports and falling demand continue to weigh on pulp and paper prices.
We don’t recommend Domtar. If you own the stock, we think you should sell.
Tomorrow we report on the BCE’s purchase of Bell Aliant and the impact it will have on the company’s prospects.
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