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."

Dan Loeb Concerned About Consensus Bullish View: Third Point's Year-End Letter

Dan Loeb's hedge fund Third Point is out with its 2010 year-end letter to investors and the most notable aspect of it is that Dan Loeb will no longer be authoring the letter going forward. He is doing so "in order to keep our views proprietary and maximize time spent on investing."

2011 Outlook

Third Point expects a continued global recovery, high commodity prices, and an increase in mergers and acquisitions activity (M&A). However, Loeb is cautious about one thing, writing, "Our greatest concern is the growing consensus around the bullish view we have held since April 2009. Therefore, we welcome sharp corrections like the two we had last month."

Focus on Paper Companies

We've highlighted how Third Point likes post-reorganization equities. While they own chemical company Lyondell Basel (LYB), the hedge fund also has exposure to various paper industry plays. Third Point's letter reveals that they initiated a new position in NewPage in the fourth quarter ("a performing credit under distressed pressure").

Loeb also reveals that he owns a position in Bowater, otherwise known as AbitibiBowater (ABH), a company that just emerged from bankruptcy and will soon also be classified as a post-reorganization equity.

Third Point also details their position in Smurfit-Stone Container (SSCC) and we've highlighted how hedge funds are active in SSCC and oppose the proposed takeover. Further rationale behind Third Point's interest in the paper industry is outlined in their 2010 year-end letter to investors, embedded below:



You can download a .pdf copy here.

For more on Loeb's hedge fund, we also just detailed Third Point's latest positioning & exposure levels.