Investors should be "selective" about buying stocks in the paper and forest products sector, which tends to underperform late in the business cycle, Goldman Sachs stated. Investors should sell one stock in the sector, Packaging Corp. (PKG), the firm advised. However, Goldman is upbeat on wood product companies.

RECOMMENDED GROUPS, STOCKS: Analyst Brian Maguire is bullish on wood product companies, saying that the group has a strong correlation with U.S. housing starts and should particularly benefit from a strong rebound in U.S. single-family starts in the next couple of years. He identified Boise Cascade (BCC) and Weyerhaeuser (WY ) as two names in that group. He started coverage of Boise with a Buy rating and $34 price target and initiated coverage of Weyerhaeuser with a Conviction Buy rating and $37 price target.

SELL PACKAGING CORP: Maguire has a neutral view on the printing and writing paper sector, which includes Packaging Corp. Although the sector should be boosted in the near-term by the improved U.S. labor market, over the longer term it will probably be hurt by increased substitution of digital devices for paper, the analyst stated. The analyst started coverage of Packaging Corp with a Sell rating, saying the company has more exposure to containerboard than any other company in the sector, as 85% of its earnings before interest, taxes, depreciation and amortization is derived from containerboard. There is already an oversupply of containerboard and that situation will probably worsen next year when capacity is expected to rise 1.6%, he warned. Moreover, Packaging Corp's valuation is expensive relative to its peers, he believes. The analyst set a $77 price target on the shares.

PRICE ACTION: In morning trading, Packaging Corp. fell about 1% to $80.94, while Weyerhaeuser advanced 4.4% to $31.68 and Boise jumped 5.4% to $25.95.