US still favours Smurfit

Smurfit might be off the radar screens of most Irish institutions who continue to be active sellers of the stock. But US investors are still finding Smurfit attractive and they have accounted for the vast bulk of the heavy buying of the stock in the past few weeks.

Normally, buying on this scale - where deals of three and four million shares have been commonplace - would have sent the Smurfit shares soaring, but they are still struggling with domestic institutions that are apparently happy to bale out of Smurfit at levels that the US institutions find attractive.

Irish investors have, in reality, lost patience with Smurfit - with their attitude towards the stock not improved by the large remuneration package Mr Michael Smurfit takes out of the company and the influence the Smurfit family has on a company in which it holds less than 10 per cent of the equity.

Whether Smurfit is an attractive investment largely depends on how one views the ability of the US packaging industry to operate in a disciplined manner when times are tough. In times past, downturns were accompanied by huge expansions in capacity - a shift in the supply/demand balance that exacerbated the cyclical slumps in an industry that has always been plagued by boom and bust periods.

In the past couple of years, there is no doubt that the packaging industry has been more disciplined and shut down surplus capacity in a concerted effort to limit the effects of an economic slowdown. Sad to say, for shareholders in packaging companies such as Smurfit, this has not translated into any improvement in the share price. What does that say about investment interest towards the shares?

Irish institutions have reasons other than Smurfit's poor share performance to dump the shares. The recent heavy selling has as much to do with continued asset re-allocation from domestic to euro-zone stocks. But when it comes to choosing an Irish stock to dispose of - and the choice is between Smurfit and the likes of CRH or Kerry - which one do you think the Irish fund manager chooses? And rightly so - there are far better places to put money than into Smurfit.

Simply because US investors have focused on Smurfit shares in the past is no compelling reason for anybody else to do so. There are plenty of other investment opportunities without putting your money into a stock that is continually in a boom-and-bust cycle. Avoid.