Plum Creek Timber Co. Inc. (PCL), Weyerhaeuser Company (WY), Rayonier Inc. (RYN): How to Build Up Your Portfolio

Page 1 of 2

Plum Creek Timber Co. Inc.Plum Creek Timber Co. Inc. (NYSE:PCL), one of the largest private timberland owners in the U.S., is down some 10.5% over the past month, which is well above the 2.5% pullback in the S&P 500. Now appears to be a great time to buy this market-leading timber REIT.

Plum Creek Timber Co. Inc. (NYSE:PCL) is one of the largest private owners of timberland in the U.S., owning some 6.6 million acres of timberland in 19 states and offering investors an impressive 3.9% dividend yield.

The real tailwinds for the stock should be a rebounding housing market. S&P expects housing starts to surpass 1 million in 2013 and then reach 1.3 million units in 2014. The timber grown and processed by the major timber REITs is a fundamental input in home building.

What makes Plum Creek Timber Co. Inc. (NYSE:PCL) a great pick is that unlike its peers (mentioned later), the REIT has a heavy weighting toward wood products and real estate. Its timber operations account for nearly 50% of revenue, with real estate operations at 25%.

Plum Creek Timber Co. Inc. (NYSE:PCL) has been under-performing its major peers over the past five years.



I believe this has been due in large part to Plum Creek Timber Co. Inc. (NYSE:PCL)’s enviable exposure to the real estate industry, which, until now, has been a negative for the company. As a result, I think Plum Creek is the best industry-pick going forward.

Plum Creek also has impressive value in its land holdings. The REIT plans to develop over 70,000 acres of land over the next decade and a half. This should come as timber prices rise thanks to the increasing demand in the housing markets.

The comps

Other notable timber REITs include Rayonier Inc. (NYSE:RYN) and Weyerhaeuser Company (NYSE:WY). Rayonier produces and markets timber, specialty fibers and wood products. This REIT owns, leases or manages 2.7 million acres of timberland in the U.S., New Zealand and Australia.

Although Rayonier Inc. (NYSE:RYN) is a timber REIT, it appears to have less exposure to the overall housing boom. The REIT gets 70% of revenue from fibers, which makes products used in acetate textile fibers, photographic film, impact-resistant packaging, cigarette filters and food products.

Earlier this year, Rayonier Inc. (NYSE:RYN) sold off its woods-products segment to International Forest Products, which goes hand-in-hand with the REIT’s strategy of shifting its manufacturing operations to specialty chemicals. Although Rayonier is still considered a timber REIT, I think its over reliance on the fibers segment makes it an unattractive play on housing. Rayonier Inc. (NYSE:RYN) also pays the lowest dividend yield of the major timber REITs at 3.3%.

Weyerhaeuser Company (NYSE:WY)’s wood-products segment is the revenue workhorse, generating over 40% of revenue, while the cellulose-fibers segment generates only 26% of revenue. Timberland (15% of revenue) and real estate (15%) round out the remaining parts of Weyerhaeuser’s revenue.

Big news of late for Weyerhaeuser Company (NYSE:WY) includes its big purchase of Longview Timber for $2.6 billion. This is one of the largest North America forestry acquisitions in recent history. The deal will add 645,000 acres of timberland in Washington state and Oregon to Weyerhaeuser Company (NYSE:WY)’s portfolio and is expected to be immediately accretive to funds for distribution.

The Weyerhaueser-Longview deal is the third-largest acquisition over the past 15 years behind only Resource Management Service’s $5 billion purchase of International Paper’s assets in 2006, and Plum Creek’s $3.3 billion acquisition of Georgia-Pacific in 2001.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!