If you're more or less from the same generation as I am, you remember the Smurfs. (If not, it was a cartoon show that just about makes the Teletubbies look like Sartre.) I can't help but think of those little blue guys whenever I read about Smurfit-Stone Container (NASDAQ:SSCC). Looking at Packaging Corp. (NYSE:PKG) got me thinking about other players in the containerboard space, and Smurfit-Stone is a natural one to examine.

This is basically a case of buying when things are ugly with the expectation that they'll soon improve. Sales at Smurfit-Stone dropped 5% in the fourth quarter, and margins were even worse. Due largely to high costs (including energy and virgin fiber), the gross margin dropped by a precipitous 700 basis points, and operating income reversed to a loss this period.

What's to be excited about in all this? Well, the company was running its mills at 97% in the fourth quarter, yet industrywide inventories are as low as they've been in over a decade. Not only has the company already implemented one price increase, but it seems like at least two more containerboard price hikes would be possible in the next year or so -- assuming that the economy doesn't slow significantly. Remember, even though inventories are low, many producers are still shuttering capacity.

What's more, the company is undergoing a restructuring effort that should improve its business. Cost-reduction efforts should lead to better margins, and asset sales could be used to pare down the debt.

However, there are plenty of things that could go wrong here. Another jump in natural gas prices would chew up margins. Same goes for more hurricanes or a general economic slowdown. If that weren't enough, there's an awful lot of debt here, which ratchets up the hazard factor. If this is a bit riskier than the stocks you normally like, you might want to look at others like Packaging Corp., Temple-Inland (NYSE:TIN), International Paper (NYSE:IP), or Weyerhaeuser (NYSE:WY) -- you might not get the same bang for the buck, but you might also sleep better at night.

I'm not even going to mess with a discounted cash flow analysis here. This is a cyclical turnaround story, and it's beastly difficult to come up with good long-term projections for those. Still, if you look at analyst projections for 2007 and past peak-cycle multiples, you do get a target price somewhere in the high teens. That may be fuzzy math, but it's also what makes turnarounds fun.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).