Timber Insiders Seeing the Forest

It’s hard to get more down-and-out than Canadian forestry stocks (except possibly U.S. financial stocks). Yet, some Canuck lumberjacks are attracting substantial insider buying, a case in point being International Forest Products (whose stock has also been exhibiting relative strength).

INK Research says:

“During the past 90 days, insiders at International Forest Products (IFP.A) have bought 616,900 shares in the public market. The biggest buyer has been board chair Lawrence Sauder who acquired 401,000 shares at prices ranging between $1.25 and $1.70 …. CEO Duncan Davies bought 100,000 shares at prices ranging between $1.77 and $1.92 and CFO John Horning bought 66,800 shares at prices ranging between $1.30 and $1.75. Other insiders who bought shares included officer Stephen Williams (30,500 shares), director John Sullivan (20,000 shares), officer Otto Schulte (7,000 shares) and chief operating officer Sandy Fulton (1,700 shares).”

The more senior and numerous the insiders, the more significant the insider-buying signal, research studies have shown. On this basis IFP.A is sending quite a bullish signal – which is rather amazing considering how dire housing and the economy now look.

On the other hand, the Canadian dollar has plunged from $1.05 (U.S.) to $0.77 (U.S.) in just over a year, making Canadian forest products much cheaper in the U.S. (and other foreign markets). In addition, a massive fiscal and monetary stimulus is being unleashed in the U.S. and around the world, which could produce another upturn in the business cycle at some point.

But could this insider buying be another head fake? In November, for example, an Investing Ideas blog post reported on insider buying at another Canadian forestry company, Canfor (CFPZF.PK), and it is down more than 20% since then. Or will patience be ultimately rewarded?

Comments

[David White:]

You make a valid point. In fact, Deutsche Bank upgraded WY to buy from hold today. However, you should also likely be advising people that this is a long term play.

In the short term WY may just be ready for another downturn. The chart indicates that it is just reaching a strong resistance point after being up $2+ today.

Tomorrow, it will not have the new upgrade from Deutsche Bank pushing it up. Plus the building permits and housing starts numbers come out tomorrow. I think everyone expects these to be miserable. I wouldn't be surprised to see WY lose the $2+ right back again. It could then keep going down from there.

In the longer term, yes it should recover as the recession ends. For the shorter term, WY keeps shutting down production. That can't be good for profitability.

Mar 16 11:57 AM

[David White:]

The only acquisitions by insiders at WY in the last two months have been at $0/share. In other words, no one on the inside is buying yet. The housing industry is still a ways away from turning around. We still have to work our way through a substantial number of foreclosures this year. The number of foreclosures was up substantially in February. The unemployment rate is increasing. This likely means even more foreclosures in the near future. Playing construction materials to the upside under these conditions may be suicide for an investor in the short term. Eventually it will be a play. However, insiders at WY are not buying. This likely is a telling statement for the industry in general.

Mar 16 12:15 PM

[rick flair:]

there is millions of dead trees in BC waiting to be prematurely cut, and dumped......beetles...... over supply for years...reminds me of gold in 99, great idea EVENTUALLY......

May 13 11:49 PM