Exiting $CLW
Buffett once famously said, “The first rule of an investment is don't lose money. And the second rule of an investment is don't forget the first rule. And that's all the rules there are.”
In the last few days our view on Clearwater has shifted, and the risks now appear greater than we thought.
The company put out new guidance: EBITDA for 2025 set at $120 million on the lower end. After depreciation and other costs, we figure operating profit might land at around $42 million. Interest takes another $35 million. That leaves just $7 million in pretax profit—a thin cushion for a business in a rough industry with unpredictable repair costs. It’s hardly the margin of safety we’d hoped for.
Consider that Sappi, a competitor, plans to bring new SBS paperboard capacity to the market by mid-2025, adding 10% to the total supply. They’re a direct competitor to Clearwater, so the impact on Clearwater’s market share could be closer to 15%.
This could have a material impact on Clearwater’s volume target and its ability to raise prices. The housing market shows no sign of picking up, either, which means pulp prices may stay high. Clearwater’s margins might get squeezed even tighter.
Better to wait until these risks have passed before stepping back into the stock.
As Benjamin Graham wrote: “The purpose of the margin of safety is to render forecasts unnecessary.”