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

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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.

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