Does Clearwater Paper Corporation (CLW) Have the Potential to Grow Mid-Cycle FCF?

Longleaf Partners, managed by Southeastern Asset Management, released its “Small-Cap Fund” fourth-quarter 2025 investor letter. A copy of the letter can be downloaded here. Longleaf experienced several environments throughout its experience in small-cap investing. This year, the underlying developments in the Fund’s holdings were more promising than the actual stock price returns when compared to the target of inflation plus 10% and the unusual performance of the Russell 2000. In Q4 2025, the Fund returned 1.13% compared to 2.40% for the Russell 3000 Index and 2.19% for the Russell 2000 Index. The Fund’s yearly return was 7.56% compared to 17.15% and 12.81% return for the indexes, respectively. In 2025, Southeastern demonstrated strong performance by protecting investments during market volatility, emphasizing the value of owning solid, free cash flow-generating companies over speculative fads. In addition, please check the Fund’s top five holdings to know its best picks in 2025.

In its fourth-quarter 2025 investor letter, Longleaf Partners Small-Cap Fund highlighted stocks like Clearwater Paper Corporation (NYSE:CLW). Clearwater Paper Corporation (NYSE:CLW) is a leading manufacturer and supplier of bleached paperboard packaging products. The one-month return of Clearwater Paper Corporation (NYSE:CLW) was -17.07%, and its shares lost 46.90% of their value over the last 52 weeks. On February 24, 2026, Clearwater Paper Corporation (NYSE:CLW) stock closed at $14.38 per share, with a market capitalization of $231.578 million.

Longleaf Partners Small-Cap Fund stated the following regarding Clearwater Paper Corporation (NYSE:CLW) in its fourth quarter 2025 investor letter:

"Clearwater Paper Corporation (NYSE:CLW) – Packaging company Clearwater Paper was a detractor for the year. We bought shares of Clearwater in April. The stock has since sold off as the already weak solid bleached sulfate (SBS) paperboard market showed few signs of improving. The market has been depressed and below mid-cycle due to oversupply problems that were exacerbated by a competitor conversion earlier this year. Clearwater continues to operate well what it can control, as evidenced by meeting synergy targets from a large and opportunistic acquisition completed last year. The clearest way the oversupply problem will be fixed is through capacity closures, but help is also coming in the form of tariffs on competing European capacity, as well as a weaker dollar that makes these imports less appealing. Management has a strong capital allocation track record and recently decided to focus on share repurchase after running an analysis on a high return but time-consuming project. We agree with this decision as the business trades at a low single-digit multiple of growing mid-cycle FCF."

Clearwater Paper Corporation (NYSE:CLW) is not on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 17 hedge fund portfolios held Clearwater Paper Corporation (NYSE:CLW) at the end of the fourth quarter, compared to 20 in the previous quarter. While we acknowledge the potential of Clearwater Paper Corporation (NYSE:CLW) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Clearwater Paper Corporation (NYSE:CLW) and shared Longleaf Partners Small-Cap Fund's views on the company in the previous quarter. In addition, please check out our hedge fund investor letters Q4 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.