Macroeconomic volatility has thrown up the opportunity to snap up cheap shares, in my opinion.
One pick I reckon investors should take a closer look at is Smurfit Kappa (LSE: SKG). Here’s why!
Packaging solutions
Smurfit is one of the largest paper-based packaging businesses in its industry. Although it may not sound glamorous, when I think of the amount of packaging needed and consumed in the current day and age, I reckon there’s a great opportunity here.
Smurfit shares are currently trading for 3,150p. At this time last year, they were trading for 3,068p, which is a 2% rise over a 12-month period. Economic and geopolitical turbulence has prevented Smurfit shares from climbing higher, in my eyes.
The investment case
To start with, the demand for packaging solutions is at all-time highs and is only set to rise according to industry data. This is linked to the e-commerce boom and changing shopping habits. Think of all the Amazon packages you may order or other online shopping. I believe this is good news for firms like Smurfit as it could help boost performance and returns.
Next, I’m buoyed by the fact Smurfit actually manufactures its own packaging. It owns paper mills and this in-house production business model can help with efficiencies and cost control. Plus, it has a good footprint across the globe, although it makes most of its money in Europe.
Looking at some fundamentals, Smurfit shares currently trade on a price-to-earnings ratio of 10, which is an attractive valuation, if you ask me. The FTSE 100 average is 14. Plus, a dividend yield of 4% is enticing. It’s worth remembering, of course, that dividends are never guaranteed.
From a bearish perspective, current economic conditions could threaten performance and returns, at least in the shorter term. For example, the rising cost of raw materials needed for its products could take a bite out of profit margins, which underpin return and growth plans.
In addition to this, Smurfit could find demand falling because of weakened consumer spending in the face of the cost-of-living crisis. This could also dent performance and potential payouts.
Final thoughts
I think that the current volatility is a double-edged sword. The shares look good value for money and there’s still a passive income opportunity on offer. However, there are challenges to overcome in the short term. I can see Smurfit has a good track record of performance. This includes growth as well as navigating tricky economic conditions. This experience could be vital. I’m conscious that past performance isn’t any sort of guarantee of the future.
I’m an avid believer in longer-term investing. With that in mind, I reckon Smurfit shares should climb once macroeconomic volatility eventually dissipates. A good market position, a burgeoning industry, and a clever business model from a manufacturing perspective has helped the firm perform well in the face of difficult market conditions. I reckon these same aspects will help Smurfit shares eventually climb as well as provide solid returns.
