Lumber and Forestry Companies: Building a Better Future

With the move towards the production of renewable transportation biofuels from non-food sources, such as lumber and wood waste, maybe it is time to look at lumber and forestry stocks.

Weyerhaeuser Co. (WY), the largest lumber company in the United States, manufactures, and sells forest products. The stock has a P/E of 17, a PEG of 7.58 , and a yield of 3.80%.

Deltic Timber Corp. (DEL) harvests timber and sells lumber throughout the United States The stock has a P/E of 55, and a yield of 0.60%.

Universal Forest Products Inc. (UFPI) produces preserved and unpreserved dimensional lumber. The stock has a P/E of 26, and a yield of 0.40%.

Pope Resources LP (POPEZ) is a limited partnership that manages timber resources. The stock has a P/E of 12, and a yield of 4.20%.

MAXXAM Inc. (MXM) grows and harvests redwood and Douglas-fir timber, and produces logs and lumber. The stock has had negative earnings.

Masisa S.A. (MYS) is a forestry and lumber company in Chile. The stock has a P/E of 29, a PEG of 1.05, and a yield of .6%.

Aracruz Celulose (ARA), which is based in Sao Paulo, Brazil, is one of the major manufactures of pulp in Brazil, and is the world’s leading supplier of eucalyptus pulp. Its shares are traded on the Sao Paulo, New York and Madrid stock exchanges. The stock has a P/E of 12, a PEG of 7.35, and a yield of 2.4%.

One of the largest pulp and paper companies in Brazil, Votorantim Celulose e Papel (VCP), manufactures printing and writing paper, coated paper, tissues, labels and thermal paper. Votorantim owns two paper and pulp mills located in Jacarei and Luiz Antonio, and two paper mills in Guaiba and Eunapolis. In addition to selling throughout Brazil, Votorantim also markets and exports its products internationally. The stock has a P/E of 5, and a PEG of 1.82.

Louisiana-Pacific Corp. (LPX) is a manufacturer of wood products for new home construction, repairs, remodeling, and manufactured housing. The stock has had negative earnings, and a yield of 5.3%.

Disclosure: The author does not own any of the above.

Comments

[OJO Zafado:]

Your forestry/lumber picks are interesting. I have followed VCP and SinoForest. They have had great runs in an environment that has not treated NA paper,pulp and lumber very well. I was led to your blog by the teaser on your high yield picks. In a combined theme I would mention that I own CFPUF,ATBUF, and TWTUF the Canadian pulp, paper, OSB, biomass, lumber producers & nursery operators. They all have excellent yields. CFPUF has been hit hard again post the Loonie's previous rise to 110. The Loonie is now surging again & up to +/- 102. This has hit CFPUF again. These are becoming great value plays as even if dividends are cut they are structured as trusts (As you mentioned PWE which I also own) and will continue to pay comparitively high dividends that are mostly 15% tax qualified. TWTUF is an exception as it's dividend is actually an interest payment on a bond. This perhaps creates an advantage for tax sheltered accounts. ATBUF has already announced plans to convert to a REIT, before the 2011 tax change you mentioned. I believe it is woth $14/sh on the ultimate recovery in 2010? in the US housing market. Also looming on the horizon are the 2010 Winter Olympic Games in Vancouver/Whistler-Bla... There is going to be a small building boom in PAC/NW Canada, that has already begun with big investment in the highway connecting to the mountain venues. I just added another partial position to CFPUF last week at $8.98 US$. The current C$0.12/month dividend may in fact be unsustainable due to Loonie strength, and be again reduced to C$0.10 from the current C$0.12. That would leave you a +13% dividend which after taking the 15% tax allowance would still yield 11.35% tax advantage @ he 15% rate. The tax is then recoverable on your US tax return as a foreign tax credit. Forestry products are the last of the commodities to still not have participated in the huge global commodities rally. When this situation reverses this stuff including your picks is going to soar. Look at a chart of DBA as an example. I just prefer the Canadian companies not just for their strong dividends while awaiting the market turn, but also for their permanent unfair trade advantages and Gov't subsidies. NAFTA is not unfair!

2008 Mar 03 09:04 AM

[jjason:]

It is nice of you guys to give a list of what to buy. I find,however, that neither the author of this article or the first commentator, Tim S. gives enough data on which to make an intelligent investment decision. I don't like teaser articles. They are a waste of my time. Discussing one stock with good data is much better than six stocks with very little data.

Also, you forgot to put in Pope and Talbot. At $.025 this penny stock will double your money in about two weeks,eh.

2008 Mar 03 02:36 PM

[Arohan:]

I own Lousiana-Pacific. Although it has negative earnings, it has cash on the books to the tune of better than 50% of its market cap and sports a P/B ratio of 0.61. It mainly serves the construction market and has been badly affected by the housing downturn. The question is, whether it can survive long enough to see the housing market come back? The company currently continues to restructure and reduce cost and with 532million in cash on the books I believe that it has the stamina to outlive the housing/construction downturn. With the stock already reflecting the worst case scenario, it is a good buy right now for someone patient enough to wait a few years. The dividend also helps while I wait

jjason, I don't know if this provides enough data to make an intelligent investment decision but atleast this should be a trigger for starting your due diligence. There is some more discussion on LPX on my blog that you are welcome to read

2008 Mar 03 04:06 PM