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Two analysts and top management from six sector firms examine the packaging & containers sector in this special 32-page Packaging & Containers issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info532.htm.

TWST: Scott, to begin, how have the packaging stocks performed over the last 18 months?

Mr. Davis: Packaging stocks have had a super run — up 90% over the past 18 months. It’s been a great period of outperformance.

TWST: To what is the strong performance attributed?

Mr. Davis: Several things, really. One, investors have come back to more stable, cash-generating, predictable companies. Two, investors have preferred small and mid-cap versus large/mega cap stocks. And three, the actual fundamentals have improved across the packaging industry.

TWST: Has the strong performance been industry-wide or have those companies with certain end markets performed better?

Mr. Davis: One of the things that I think makes investing in packaging stocks incredibly interesting is that, in any given year, there’s a tremendous amount of variance between the best performing and the worst performing stock. So there are times when you can make money owning any packaging company but, for the most part, it’s a stock picker’s group. In a normal year, the best performing name might be outperforming the worst performing name by as much as 100% or more.

TWST: What are your main concerns for the group over the next few quarters?

Mr. Davis: Our biggest concern that’s cropped up in the last couple of weeks is the advent of higher energy prices. Energy prices, in and of themselves, are not tremendously important to packaging companies — typically somewhere around 5% of cost of goods sold. But many packaging companies buy plastic resins and other raw materials that can be influenced by higher energy prices. So right now, we are concerned about higher energy prices and have some concerns about potentially higher raw material prices, but it’s not a huge concern yet.

TWST: Are there any companies that are more or less sheltered from rising energy and resin costs?

Mr. Davis: No. Pretty much everyone gets impacted by higher energy prices, and that’s true not just for packaging stocks but pretty much all industrial companies.

TWST: How does the packaging group generate growth? Is it internal or is it more M&A?

Mr. Davis: Historically, growth in this industry has been limited to GDP type numbers but this depends on the product. There are some higher growth businesses, particularly in plastic packaging, and international growth rates are still attractive. Overall, however, acquisition activity has been the fastest way to grow the top line. Most companies in this space focus on smaller bolt-on acquisitions that tuck in nicely with existing products and infrastructure.

TWST: How about Sealed Air (NYSE:SEE)?

Mr. Davis: Sealed Air has the most leverage to an improving economy and lower raw material plastic resin prices of any name in our group. So we think that once volumes come back, Sealed Air is the company most likely to see sizable upward earnings revisions. The company also has a new product pipeline in both its protective packaging business and food packaging business that could also provide upside. Sealed Air has a solid management team with a long history of creating shareholder value and the valuation is well below historical levels.

This special issue includes:

1) Outlook for Packaging Companies - In an in-depth (2,400 words) Analyst Interview, Scott Davis, Vice President at Morgan Stanley, examines the outlook for the sector including and shares specific stock recommendations.

2) Packaging Stocks - In an in-depth (4,000 words) Analyst Interview, Joel Tiss, Senior Vice President at Lehman Brothers, Inc., examines the outlook for the sector including and shares specific stock recommendations.

3) CEO interviews (average 2,500 words). Top management of six sector firms examine the outlook for their firm and the sector.