What to do with a $350,000 windfall? That’s what reader Stanley Reimer wants to know. In a recent email, he wrote: “Dan, I need you to put your brain to work for me. I recently inherited a little over $350,000 worth of stock in two packaging companies, Sealed Air [$51.87] and MeadWestvaco [$32.94]. I had never heard of either one of them. My broker says they’re boring companies, that I should sell them both, and put the money into Microsoft [$25.09]. I would appreciate your advice.”

Answer: Stan, the folks at Standard & Poor’s think your broker is all wet. They like the packaging companies, theorizing a peppier world economy will spur an improved manufacturing environment and a noticeable pickup in the movement of goods. In the case of Sealed Air and MeadWestvaco, They think they’re both attractive and see gains for each over the next 12 months.

As for Microsoft, one veteran S&P analyst said he had once owned the stock, but sold it, in part following a “gloomy chat” he had with a management contact. He now views the software giant as a “do nothing” investment over the next 6 to 12 months, based on his belief – and he’s hardly alone – that “its big growth and glory days are behind it.” He doubts, in fact, that Microsoft, as many pros expect, will post low double-digit profit growth over the next 3-5 years. For the balance of the year, he sees the stock trading in a $23-$29 range.

Here, in brief, is why S&P likes the two packaging stocks, kicking off with MeadWestvaco, a paper and packaging manufacturer. S&P likes the idea that the company is selling off its coated paper business. This divesture, it’s felt, will transform the company into one that is less sensitive to business and economic cycles, and lead to more stable cash flows and a stronger balance sheet.

In addition, the advisory service sees continued strong growth in the company’s higher-margin consumer segment as market share expands. It also expects solid growth in the packaging unit from higher DVD sales. Overall, it looks for company revenues last reported at $7.5 billion in 2003 to increase 5.3% this year. It also sees margins benefiting from fewer manufacturing facilities and other cost-cutting moves.

This year’s operating earnings are pegged at $1.61 a share, versus a loss of $1.72 a share in 2004. Another plus, aside from the earnings turnaround, is an above-average 3.1% dividend yield. S&P’s 12-month target for the stock is $35.

As for Sealed Power, S&P expects this global maker of packaging for food and other products to benefit from increased demand, especially in Latin America and Asia. In addition, food-packaging sales are seen recovering as restrictions on American beef imports resulting from the mad cow scare in 2003 are likely to be lifted by mid-2005. Likewise, it expects margins will widen as price hikes and a more favorable product mix offset high, but stabilizing raw material costs. Also, recent restructuring efforts should lead to better operating efficiencies.

S&P projects free cash flow this year will exceed $300 million and believes the company will use some of that cash to continue to pay down debt, buy back shares, and make small acquisitions. Operating earnings are estimated at $3.15 this year and $3.50 next year. Further, it’s noted, the stock trades at less than 17 times the 2005 estimate, a discount to peers and well below its historical average. S&P’s 12-month target for the stock is $60.

Speaking of packaging, S&P also favors Packaging Corporation of America ($24.87), a supplier of corrugated and packaging products, which has already exceeded the advisory’s price target. Here again, it thinks a strengthening economy will help bolster demand and lead to further price improvement for container and corrugated products. Prices have recovered from their 2004 lows and S&P sees potential in the first half of 2005 for the industry to push through its third consecutive containerboard price increase since the spring of 2004.

It expects this year’s revenues to rise 13% and projects earnings will jump to $1.25 a share from 64 cents in operating earnings in 2004. Its shares now have a 3.9% yield, one of the highest in the packaging industry.

The bottom line from an investments standpoint: Packaging yes, Microsoft no.