Rock-Tenn Company (RKT): High-Growth Company’s Breakout Makes It a ‘Buy’

In addition to a strong fundamental outlook, the company is reasonably valued based on its trailing P/E ratio of about 14.3.

The company also has a very attractive PEG ratio (P/E divided by EPS growth rate) of about 0.86. Typically, a PEG of 1 or under shows good value.

The stock has a forward annual dividend yield of 1%. It has consistently paid a dividend since 1997, and since 2009, the quarterly dividend has jumped from $0.10 per share to its current $0.30 per share.

Given the strong technical and fundamental picture, I plan to go long on the paper products stocks.

Risks to consider: Consumer packaging is an economically sensitive sector and a downtick in worldwide GDP could result in decreased revenue and profit for Rock-Tenn Company (NYSE:RKT). Additionally, the company’s strategy of raising prices may prompt some clients to source their packaging from competitors. That said, increased prices have, so far, only resulted in revenue and earnings growth, and management anticipates strong growth ahead.

Recommended Trade Setup:

— Buy RKT at the market price
— Set stop-loss at $109.89, just below current support
— Set initial price target at $134.95 for a potential 8.5% gain by year’s end

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