Mercer International, Inc. (NASDAQ:MERC)

Paper? Common! Everything's tech now!

Cheap indirect lumber/ recovery play

Yahoo small cap growth (P/S <1).

13

redeeming $37 million in convertible notes. These notes convert at $3.30 a share and some owners convert these to shares and sell them. Insider buying

http://www.investorplace.com/49807/cheap-stocks-to-buy-lf-face-cool-etfc-lci-merc-optr-buse-lscc/7/

If 2012 earnings meet current analyst estimates of $3.18 per share, we are looking at a 2012 forward P/E of 4.28. The stock should easily be trading for a modest forward P/E of 8 at the beginning of next year. I'll set a price target of $21.60 and round the 2012 earnings number down to a more conservative estimate of $2.70 which is a 15% discount over current estimates. Barring a collapse in pulp prices we should see atleast a 50% move up by the end of 2011.

Jeff Phillips bought MERC in his Long-Short Equity Covestor Model

The trend is your friend!

undervalued

Improving Professional Opinion

lowpricevaluestocks15

Lots of leverage to pulp. Book value doesn't reflect value of assets due to government grants, which, if included, raise book to $15/share. EV/EBIT of 4x, and leverage makes small upwards valuation change to 5x translate into stock price of $13+. NBSK is not falling like expected, October Mercer and Arauco kept prices flat for 2nd consecutive month. Debt is high at E860M, but E500M is guaranteed by German gov't, and the company is earning EBIT of E200M per year at current prices.

Mercer is one of the world's largest producers of NBSK market pulp producers, if measuring by overall capacity. NBSK pulp is produced from wood chips and pulp logs, and is used for a myriad of paper applications, including normal print and writing paper, magazines, catalogs and inserts.

Fundamentally speaking, I think Mercer has gotten itself into a bit of a hole. Reviewing the income statement, I noticed they paid $20MM in interest expense in 1Q2010, which wiped out their operating profit for the quarter. The balance sheet shows they have $1BB in total long term debt - WOW!! It's my opinion that it is going to get increasingly more expensive to refinance debt of this magnitude in the coming years across the globe. Investors are going to demand higher premiums given the instability of first world fiat currencies. I think Mercer will have years of pressure on their income statement due to this debt. This might be one case where it might be helpful to shareholders to issue a few more shares to pay this debt down, but I digress.

The paper / pulp business is also a pretty highly competitive business in a low growth environment. Paper is not as attractive an investment as it once was. With the environmental movement across the world pushing for increased recycling and decreased usage of paper products, the pulp market is unlikely to improve in any substantial manner in the coming years. The good news is shareholders have seen an 8 fold increase from the bottom in July 2009. The bad news is it seems highly unlikely to continue its upward trajectory.

I don't like shorting stocks, but if my portfolio in MERC goes down 10% in less than a week, I am concerned. Wait and hold until your back above water with this one.

Advances in technology with digital signatures, documents and other forms drive down demand for paper. Is the industry screwed as a whole? Or am I not seeing the whole picture? Where is the new stream of revenue going to be in 5 -10 years?

Lets Give It Some Time MeRC !

Paper is out.

Long

We always need paper.