As part of David Merkel’s rules on industry selection, he lists the following:

• Buy strong companies in weak industries when the industry pricing outlook seems hopeless.
• Buy moderate to strong companies in strong industries where the earnings power and duration are underestimated.
• Underweight/Ignore/Short industries where pricing power is likely to be negative for several more years, and especially industries that are in terminal decline.
• Avoid fad industries. There are P/E levels that no industry can grow into.

My best example of #1 is the P&C insurance industry in early 2000. Total gloom. I bought a lot of The St. Paul then. Another example: Steel in 2001-2002. I bought Nucor.

In his industry rankings, updated about two weeks ago, he suggests that paper/forestry as well as building products are worth looking into on the value side. I’ve said several times that I think there is much better risk/reward in the housing arena by sticking with the building products companies, because they have much better liquidity. A few months back, I did a two-part analysis and valuation of Weyerhaeuser (WY), where I said that the valuation seems more compelling if the stock came down into the mid-$50s. Well, four months later, we’re there – and Weyerhaeuser has shed the CBPR unit I disliked for a pretty good price.
So, is it time to buy Weyerhaeuser, or any other company in paper/forestry or building products? The last few days, I’ve seen two articles suggesting just that – one arguing that Weyerhaeuser is a buy and another stating that paper maker Domtar (UFS) has unrecognized earnings power. On a recent episode of Mad Money, Jim Cramer recommended combination play Temple-Inland (TIN), which he said looks very cheap at $12.