In this article, we will discuss the 10 best lumber stocks to invest in.
Home prices are going through the roof in 2022 amid surging inflation, higher interest rates, and rising mortgage rates. Expensive borrowing has been hurting homebuyers and causing consumer demand weakness within the housing sector. With mortgage rates approaching 7%, the prices of lumber are falling and may be at or approaching a bottom. As of October 7, lumber is trading at $445 per 1000 board feet and has declined about 60% year to date.
Housing Starts Rose Unexpectedly in August
On September 20, Reuters reported that new residential home construction in the U.S. rose in August. Housing starts, a measure of new residential construction, grew by 12.2% month-over-month to 1.58 million units in August, well above market consensus which sat at 1.44 million units. Starts for multi-family housing projects surged 28.6% month-over-month in August, driven by strong demand for rental apartments due to higher mortgages that are taking away the purchasing power of potential homebuyers. Single-family housing starts rose in August to 935,000 units and recorded a 3.4% month-over-month increase.
Surging demand for multi-family housing projects is spurring activity in the volatile commodities market. Lumber futures have gained roughly 5% over the past five days as of October 7. Investors that are looking to capitalize on the current housing situation can position their portfolios for a rebound. Lumber prices have close ties to the housing market and though the housing sector is being pressured by higher interest rates and mortgage rates, the rise in multi-family starts can send lumber prices higher. Investors can benefit while lumber still comes cheap by buying some of the top lumber stocks into weakness right now. Some of the best lumber stocks with positive market sentiment include UFP Industries, Inc. (NASDAQ:UFPI), Boise Cascade Company (NYSE:BCC), and Weyerhaeuser Company (NYSE:WY).
Photo by René Schubert on Unsplash
Our Methodology
To determine the best lumber stocks to buy now, we reviewed the lumber industry and identified major players. We narrowed down our selection to profitable companies with strong balance sheets and solid free cash flows. We gave weight to analyst and investor sentiment and included stocks with positive market sentiment. Along with each stock, we have mentioned the hedge fund sentiment, analyst ratings, and salient features that make it rank among the best lumber stocks to buy now. We have arranged these stocks according to their popularity among elite hedge funds.
Best Lumber Stocks To Invest In
10. Stella-Jones Inc. (OTC:STLJF)
Number of Hedge Fund Holders: N/A
Stella-Jones Inc. (OTC:STLJF) is a leading North American producer of wood products. On September 15, Stella-Jones Inc. (OTC:STLJF) announced that it will be acquiring Texas Electric’s wood utility pole manufacturing business for $28 million and also $4 million worth of inventories. The transaction is expected to close by the end of 2022. The stock is one of the best lumber stocks to invest in right now.
On August 10, Stella-Jones Inc. (OTC:STLJF) announced earnings for the second quarter of 2022. The company reported earnings per share of $1.51 and generated a revenue of $907 million, beating Wall Street estimates by $238.39 million. As of October 7, the stock is trading at a PE multiple of 13x and is offering a forward dividend yield of 2.03%. The company has free cash flows of $235 million and is one of the best cash-rich lumber stocks to buy now.
Wall Street analysts are bullish on Stella-Jones Inc. (OTC:STLJF). On August 11, TD Securities analyst Michael Tupholme raised his price target on Stella-Jones Inc. (OTC:STLJF) to C$48 from C$45 and maintained a Buy rating on the shares. On September 16, Scotiabank analyst Mark Neville raised his price target on Stella-Jones Inc. (OTC:STLJF) to C$51 from C$50 and reiterated a buy-side Outperform rating on the shares.
Some of the best undervalued lumber stocks to buy now include Stella-Jones Inc. (OTC:STLJF), UFP Industries, Inc. (NASDAQ:UFPI), Boise Cascade Company (NYSE:BCC), and Weyerhaeuser Company (NYSE:WY).
9. Interfor Corporation (OTC:IFSPF)
Number of Hedge Fund Holders: N/A
Interfor Corporation (OTC:IFSPF) produces and sells wood products in Canada, the United States, Japan, China, Taiwan, and international markets. The company offers lumber, logs, wood chips, and other residuals. On October 4, Scotiabank analyst Benoit Laprade revised his price target on Interfor Corporation (OTC:IFSPF) to C$42 from C$43 and reiterated a buy-side Outperform rating on the shares.
On October 3, Interfor Corporation (OTC:IFSPF) announced that it will be acquiring 100% of the equity interests in Chaleur Forest Products for C$325 million. Chaleur Forest Products operates two sawmill operations that have a combined annual lumber production capacity of 350 million board feet. The acquisition is expected to close in the fourth quarter of 2022.
Interfor Corporation (OTC:IFSPF) is cash rich and profitable. The company has trailing twelve-month cash flows of $734.6 million and an operating margin of 28.4%. Over the past three months, the stock has received 3 Buy ratings and 1 Hold rating from Wall Street analysts and has a consensus Strong Buy rating. Interfor Corporation (OTC:IFSPF) is one of the best lumber stocks to buy now.
8. West Fraser Timber Co. Ltd. (NYSE:WFG)
Number of Hedge Fund Holders: 14
West Fraser Timber Co. Ltd. (NYSE:WFG) is a diversified wood products company that manufactures and distributes lumber, engineered wood products, pulp, newsprint, wood chips, and other residuals. At the end of the second quarter of 2022, 14 hedge funds held stakes in West Fraser Timber Co. Ltd. (NYSE:WFG). The total value of these stakes amounted to $230 million.
This July, TD Securities analyst Sean Steuart raised his price target on West Fraser Timber Co. Ltd. (NYSE:WFG) to $120 from $105 and reiterated a Buy rating on the shares. Over the past three months, West Fraser Timber Co. Ltd. (NYSE:WFG) has received 3 Buy ratings from Wall Street analysts and has a consensus Strong Buy rating. The stock has an average price target of $102, which represents an upside of 42%. West Fraser Timber Co. Ltd. (NYSE:WFG) is one of the best lumber stocks to buy now.
On September 7, West Fraser Timber Co. Ltd. (NYSE:WFG) declared a quarterly cash dividend of $0.30 per share of the company’s common stock. The dividend was payable on October 7 to investors of record at the close of business on September 22. As of October 7, the stock is offering a forward dividend yield of 1.67% and has free cash flows of $2.14 billion.
As of June 30, Waratah Capital Advisors is the most prominent shareholder in West Fraser Timber Co. Ltd. (NYSE:WFG) and owns roughly 0.73 million shares of the company. The fund’s stakes are valued at $56.6 million and the investment covers 1.24% of its 13F portfolio.
7. Resolute Forest Products Inc (NYSE:RFP)
Number of Hedge Fund Holders: 16
Resolute Forest Products Inc. (NYSE:RFP) operates in the forest products industry in the United States, Canada, Mexico, and international markets. The company has four business divisions: Market Pulp, Tissue, Wood Products, and Paper. As of October 7, Resolute Forest Products Inc. (NYSE:RFP) has gained 46.5% over the past twelve months and is one of the best lumber stocks to buy now.
Resolute Forest Products Inc. (NYSE:RFP) is trading at a bargain and has solid free cash flows. As of October 7, Resolute Forest Products Inc. (NYSE:RFP) has a trailing twelve-month PE ratio of 3.78 and has free cash flows of $499 million.
This August, TD Securities analyst Sean Steuart revised his rating on Resolute Forest Products Inc (NYSE:RFP) to Tender from Hold and reiterated his $23 price target on the shares. The stock has a consensus Buy rating among analysts.
At the end of the second quarter of 2022, 16 hedge funds held stakes in Resolute Forest Products Inc (NYSE:RFP). The total value of these stakes amounted to $478.78 million. As of June 30, Fairfax Financial Holdings owns more than 30.5 million shares of Resolute Forest Products Inc (NYSE:RFP) and is the top shareholder in the company. The fund’s stakes are valued at $389.79 million and the investment covers 13.73% of its investment portfolio.
6. Rayonier Inc. (NYSE:RYN)
Number of Hedge Fund Holders: 17
Rayonier Inc. (NYSE:RYN) is a specialized REIT that manages assets that are rich in lumber and timber. On August 3, Rayonier Inc. (NYSE:RYN) announced market-beating earnings for the second quarter of 2022. The company reported earnings per share of $0.22 and outperformed estimates by $0.06. The company generated a revenue of $246.3 million and beat Wall Street consensus by $30.79 million.
Rayonier Inc. (NYSE:RYN) pays dividends and is cash-rich and profitable. As of October 7, the stock is offering a forward dividend yield of 3.62% and the company has free cash flows of $104.48 million and a trailing twelve-month operating margin of 20.8%. Rayonier Inc. (NYSE:RYN) is one of the best lumber stocks to buy now.
At the end of the second quarter of 2022, 17 hedge funds were long Rayonier Inc. (NYSE:RYN) and held stakes worth $250.28 million in the company. As of June 30, Impax Asset Management is the leading shareholder in Rayonier Inc. (NYSE:RYN) and has stakes worth $172.9 million in the company.
For investors that are on the lookout for lumber stocks, some of the best pure-play lumber stocks to invest in right now include UFP Industries, Inc. (NASDAQ:UFPI), Boise Cascade Company (NYSE:BCC), and Weyerhaeuser Company (NYSE:WY).
5. Boise Cascade Company (NYSE:BCC)
Number of Hedge Fund Holders: 18
Boise Cascade Company (NYSE:BCC) is a leading manufacturer of wood products and a leading distributor of building materials. The company primarily operates in the United States and Canada. Boise Cascade Company (NYSE:BCC) is trading at a bargain right now. As of October 7, the stock has a trailing twelve-month PE ratio of 3.12 and is offering a forward dividend yield of 0.78%. Moreover, the company has solid free cash flows and is profitable. Boise Cascade Company (NYSE:BCC) has free cash flows of $696 million and a trailing twelve-month operating margin of 12.78%.
Wall Street analysts are positive on Boise Cascade Company (NYSE:BCC). On September 20, BofA analyst George Staphos revised his price target on Boise Cascade Company (NYSE:BCC) to $72 from $73 and reiterated a Neutral rating on the shares. The stock has a consensus Hold rating among Wall Street analysts.
At the end of the second quarter of 2022, 18 hedge funds held stakes in Boise Cascade Company (NYSE:BCC). The total value of these stakes amounted to $48.5 million. As of June 30, Arrowstreet Capital is the largest shareholder in Boise Cascade Company (NYSE:BCC) and has a stake of $7.98 million in the company.
4. UFP Industries, Inc. (NASDAQ:UFPI)
Number of Hedge Fund Holders: 19
UFP Industries, Inc. (NASDAQ:UFPI) manufactures and distributes wood and wood alternatives in North America, Europe, Asia, and Australia. The company operates through three segments: Retail, Industrial, and Construction. At the end of the second quarter of 2022, 19 hedge funds were long UFP Industries, Inc. (NASDAQ:UFPI) and held stakes worth $112 million in the company.
This July, DA Davidson analyst Kurt Yinger raised his price target on UFP Industries, Inc. (NASDAQ:UFPI) to $101 from $90 and reiterated a Buy rating on the shares. On July 22, Stifel analyst Stanley Elliott raised his price target on UFP Industries Inc. (NASDAQ:UFPI) to $100 from $95 and maintained a Buy rating on the shares.
UFP Industries, Inc. (NASDAQ:UFPI) is one of the best lumber stocks to buy now and is currently trading cheaply relative to earnings. As of October 7, the stock is trading at a PE multiple of 7x and is offering a forward dividend yield of 1.38%. The company has free cash flows of over $574 million and a trailing twelve-month operating margin of 9.43%.
3. PotlatchDeltic Corporation (NASDAQ:PCH)
Number of Hedge Fund Holders: 26
PotlatchDeltic Corporation (NASDAQ:PCH) is one of the largest lumber REITs and owns over 1.8 million acres of timberlands across the United States. PotlatchDeltic Corporation (NASDAQ:PCH) is undervalued, pays dividends, and has solid free cash flows. As of October 7, the stock has a trailing twelve-month PE ratio of 7.56 and is offering a forward dividend yield of 4.14%. The company has free cash flows of $405 million. On August 31, PotlatchDeltic Corporation (NASDAQ:PCH) announced a share buyback program of $200 million. PotlatchDeltic Corporation (NASDAQ:PCH) is one of the best lumber stocks to buy now.
On September 20, BofA analyst George Staphos revised his price target on PotlatchDeltic Corporation (NASDAQ:PCH) to $53 from $55 and maintained a Neutral rating on the shares. The stock has a consensus Buy rating among Wall Street analysts.
At the close of the second quarter of 2022, 26 hedge funds were bullish on PotlatchDeltic Corporation (NASDAQ:PCH) and held stakes worth $126.5 million in the company. This is compared to 21 positions in the previous quarter with stakes worth $54 million. The hedge fund sentiment for the stock is positive. As of June 30, Millennium Management is the largest shareholder in PotlatchDeltic Corporation (NASDAQ:PCH) and has stakes worth $30.5 million in the REIT.
Here is what GreenWood Investors LLC had to say about PotlatchDeltic Corporation (NASDAQ:PCH) in its second-quarter 2022 investor letter:
“PotlatchDeltic Corporation (NASDAQ:PCH) was by far the largest detractor from our performance in the second quarter (generating 9.7% of portfolio weighted losses for us). You can imagine the surprise we had, as the company hosted its first capital markets day (CMD) in seven years. It appears someone was motivated to start short position in June, just before this CMD.
From the insider’s perspective, this looks incredibly short-sighted. While the first quarter was not up to our standards, the team pulled it together, and reiterated profit guidance for the year. The guidance implies it will be the fastest growing of its peers this year, and we have worked hard with the management team to ensure this best-in-class growth sustains. Looking further out, the company guided towards roughly doubling operating profit in the next few years, comfortably above where consensus forecasts laid at the time. What we think is the most important about the guidance, was that it was given in a period where we were experiencing recession-like conditions. Thus, as opposed to the capital markets days of the tech companies last year, this outlook is built-up through conservatism.
What’s more, is that the CMD was not a “sell the news” event. As the managers alluded to, there are important balance sheet restructuring initiatives well underway. Indeed, they have been worked on for years. Those with the most knowledge of the company, those that sit on the board, have decided to upsize the buyback program, as we personally believe current prices to be a gift. They attribute zero value to the operating business, which is in the process of becoming less capital intensive, all while committing to getting to net zero in carbon emissions by 2030…”(Click here to read full text)
2. Louisiana-Pacific Corporation (NYSE:LPX)
Number of Hedge Fund Holders: 28
Louisiana-Pacific Corporation (NYSE:LPX) manufactures and markets building products that are used in new home construction, repair, and remodeling. The company is a leading producer of lumber and is one of the best lumber stocks to buy now. Over the past three months, Louisiana-Pacific Corporation (NYSE:LPX) has received 3 Buy ratings and 1 Hold rating from Wall Street analysts and has a consensus Buy rating.
Louisiana-Pacific Corporation (NYSE:LPX) is trading at bargain levels and is presenting an attractive entry point for investors. As of October 7, the stock has a trailing twelve-month PE ratio of 3.45 and is offering a forward dividend yield of 1.60%. Moreover, the company is profitable and has solid free cash flows. Louisiana-Pacific Corporation (NYSE:LPX) has free cash flows of over $1.2 billion and has a trailing twelve-month operating margin of 37.2%.
At the end of the second quarter of 2022, 28 hedge funds were long Louisiana-Pacific Corporation (NYSE:LPX) and held stakes worth $213.3 million in the company. As of June 30, Renaissance Technologies is the most prominent investor in Louisiana-Pacific Corporation (NYSE:LPX) and has stakes worth $40.78 million in the company.
Here is what L1 Capital International had to say about Louisiana-Pacific Corporation (NYSE:LPX) in its second-quarter 2022 investor letter:
“We have invested in Louisiana-Pacific Corporation (NYSE:LPX) due to its Smartside siding business. Smartside has consistently increased its share of the siding market in the U.S., not just new residential construction but repair and renovation, shed and other markets. Louisiana Pacific has not been able to keep up with demand for Smartside and is sold out to the end of 2022. New capacity is being added currently which will support future growth.
Between 2015 to 2022, Smartside EBITDA increased from around US$100 million to a run-rate approaching US$400 million. We believe Smartside has many years of strongly profitable growth to come (see Figure 12).
Imagine being offered to buy a business. This business is breakeven in a down year, makes an operating profit of a few hundred million dollars in a normal year, and in an exceptional period in 2021 made around US$1.5 billion profit. The person offers to sell you the business for nothing. This is the current investment opportunity for Louisiana Pacific. In addition to owning Smartside, it also owns the second largest oriented strand board business in North America and a successful woods product business in South America. The price of OSB is exceptionally volatile, but has recently delivered super-normal profits to Louisiana Pacific, enabling management to buy back 45% of shares on issue while maintaining net cash. At Louisiana Pacific’s current share price, we are paying the bottom end of fair value for Smartside and getting the OSB business practically for nothing.”
1. Weyerhaeuser Company (NYSE:WY)
Number of Hedge Fund Holders: 41
Weyerhaeuser Company (NYSE:WY) is a specialized REIT and is one of the world’s largest owners of timberlands. The company owns more than 11 million acres of timberlands across the United States. Weyerhaeuser Company (NYSE:WY) is a profitable and cash-rich company and is one of the best lumber stocks to buy now. As of October 7, Weyerhaeuser Company (NYSE:WY) has free cash flows of $2.5 billion and a trailing twelve-month operating margin of 33.14%.
In addition to being profitable and having strong free cash flows, Weyerhaeuser Company (NYSE:WY) is currently trading cheaply relative to earnings and is also paying a hefty dividend. As of October 7, Weyerhaeuser Company (NYSE:WY) is trading at a PE multiple of 8x and is offering a forward dividend yield of 2.51%.
On September 29, Raymond James analyst Buck Horne revised his price target on Weyerhaeuser Company (NYSE:WY) to $39 from $45 and reiterated a Strong Buy rating on the shares.
At the close of the second quarter of 2022, 41 hedge funds held stakes in Weyerhaeuser Company (NYSE:WY). The total value of these stakes amounted to $328.6 million. This is compared to 40 positions in the previous quarter with stakes worth $279.8 million. The hedge fund sentiment for the stock is positive. As of June 30, First Eagle Investment Management is the leading shareholder in Weyerhaeuser Company (NYSE:WY) and owns over 14.5 million shares of the company.
You can also take a look at 11 Best Dividend Stocks Under $50 and 14 Best Clean Energy Stocks To Buy Now.
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Disclosure: None. 10 Best Lumber Stocks To Invest In is originally published on Insider Monkey.
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