Top picks 2012: OfficeMax

While the office supplier is sensitive to economic activity, investors overreacted in dumping the stock.

By TheStockAdvisors Dec 28, 2011 4:57PM
Image: Shredder (© James Darell/Getty Images)This post is one in a series in which over 50 newsletter advisors share their Top Picks for 2012

By George Putnam, The Turnaround Letter

One of our favorite stocks for 2012 is OfficeMax (OMX), a leading seller of office products in both the business-to-business and retail channels. 

The stock declined steadily through much of 2011 as investors fretted about the possibility of a new recession in the U.S.

The current incarnation of OfficeMax began to take shape in late 2003, when it was acquired by Boise Cascade, a large lumber and forest products company that also sold paper and office supplies.

About a year later, the merged company sold its forest products and timberland assets and adopted the OfficeMax name. It now operates more than 900 retail stores and has a contract business (selling directly to offices) with more than $3.5 billion in sales.

While OfficeMax is sensitive to economic activity, we believe that investors have significantly overreacted in dumping the stock. It now looks as though the economy isn’t doing so badly after all. Moreover, even if there is some weakness in business spending, OfficeMax is now much more efficient than it was in past downturns.

The company is focusing on several areas for new growth, including overseas expansion, increased online presence and new "integrated solutions" for offices. 

By most measures, the stock looks very cheap, with a price-to-earnings ratio of less than nine and a price-to-sales ratio of 0.05 (both based on trailing 12-month numbers). 

Even without renewed growth, a slight change in investor perceptions about OfficeMax could send the stock up sharply. 

Steven Halpern's TheStockAdvisors.com offers a free daily review of the favorite stock ideas of the nation's top financial newsletter advisors.
Tags: OMX
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