David Gallo's Valinor Management Increases Clearwater Paper (CLW) Position ~ market folly

Tuesday, March 8, 2011

David Gallo's Valinor Management Increases Clearwater Paper (CLW) Position

David Gallo's hedge fund firm Valinor Management recently added to its position in Clearwater Paper (CLW). Due to portfolio activity on February 24th, Valinor now shows a 5.1% ownership stake in CLW with 581,380 shares.

This is a slight increase in their holdings as they owned 505,106 shares at the end of 2010. As such, they've boosted their position size by 15%. We've detailed some of Valinor's other portfolio activity as well.

In general, the paper and packaging industry has garnered increased interest from hedge funds as of late. Dan Loeb's hedge fund Third Point explained why in a recent letter, citing four factors for the industry's upheaval:

"1. The expiration of the (black liquor) tax credit caused the closure of many marginal paper plants and led to much higher paper pricing for the survivors in 2010-11.

2. Paper can only be recycled only a limited number of times before the fiber wears out, further increasing OCC (recycled paper) pricing.

3. Softwood pulp producers or those who are vertically integrated with their own softwood pulp enjoy a substantial cost advantage.

4. The combination of industry consolidation and capacity reduction has led to many paper grades currently running at +90% utilization, a level that gives them the flexibility to raise prices."

Be sure to read Third Point's full rationale on the paper industry. Hedge funds have also been active in Smurfit-Stone (SSCC) as the paper company received a takeover offer, as well as Abitibibowater (ABH), another paper company that just emerged from bankruptcy.

Per Google Finance, Clearwater Paper is "a producer of tissue and paperboard products in the United States. The Company’s products are manufactured in the United States and utilize primarily wood pulp. The Company operates in three segments: Consumer Products, Pulp and Paperboard, and Wood Products."

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