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Louisiana-Pacific - A Fully-Valued Timber And Construction Materials Play

Jan. 03, 2022 2:22 AM ETLouisiana-Pacific Corporation (LPX)6 Comments


  • A reader contacted me about a company in his area - Louisiana-Pacific, or "LP", a business that's heavily invested in the timber and building materials area.
  • The company pioneered OSB panels in North America and today is the world's largest producer of OSB and engineered wood building products.
  • In this article, we look at the company and decide whether it's worth investing in.
  • I do much more than just articles at iREIT on Alpha: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »
Father and Son Buying Wooden Panels in Construction Store

SeventyFour/iStock via Getty Images

In this article, we'll take a longer look at the Louisiana-Pacific company (NYSE:LPX), a business focusing on building materials. We'll look at valuation, company volatility (there's a lot to be said here, unfortunately), once we've gone through some fundamentals as to what the company

The company discussed in this article is only one potential investment in the sector. Members of iREIT on Alpha get access to investment ideas with upsides that I view as significantly higher/better than this one. Consider subscribing and learning more here.

This article was written by

Wolf Report profile picture

Wolf Report is a senior analyst and private portfolio manager with over 10 years generating value ideas in European and North American markets.

He is a contributing author for the investing group iREIT on Alpha where in addition to the U.S. market, he covers the markets of Scandinavia, Germany, France, UK, Italy, Spain, Portugal and Eastern Europe in search of reasonably valued stock ideas. Learn more.

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Comments (6)

Wolf Report profile picture
Happy New Year from Sweden!
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constable profile picture
I think this is a very judicious and in-depth analysis of LPX, with important attention to the cyclicality. (I am interested that the FastGraph shows how much flatter is the stock price than the earnings with their extreme fluctuation; but I do not know what to make of it.) Personally, and given my investment goals, I think that you are a fine and important addition to iREIT on Alpha.
Jason Z profile picture
Your points maybe valid, but too cautious, they are valid only if you think we are near the end of the cycle. I think it's just the beginning of a super cycle and pricing for lumber products will never return to pre-covid levels. This is why since 7 months ago, all 3 SA articles are all bearish (4 including yours), and they have all been proven wrong.
Thanks for a well done investment article. I live in a rural area and LPX is going to open a new job creating facility here in 2023 for smart siding for the Northeast market. That news got my attention and your article gave it perspective.
jwillis99 profile picture
Goldman Sachs hates LPX too. They downgraded it to a sell in July, slapped a $54 price target on it. The stock traded down into the low 50s, then bolted 50% higher in just six months … making a fool of Goldman.

What you’re overlooking is their booming segment in pre-fab. Working hand in glove with builders like BZH, LPX is manufacturing major components of a home in a manufacturing facility, and transporting large segments to the building site for quick and easy installation. This process cuts down tremendously in both labor costs, and materials waste. And it produces significantly more energy efficient homes, cutting construction time significantly too. This is the future of home building, and LPX is leading the charge. This division is growing like a weed, and they just recently moved their best operating executive over to that division to manage its growth. Within a year, that’s all you’ll hear about when analysts talk about housing … how LPX is revolutionizing the industry. And this stock will be bid into the mid to high 100s in the blink of an eye. Watch, learn.
Wolf Report profile picture
@jwillis99 Hey, thanks for commenting!

I'm not missing the potential here at all - and like you're saying, it might be the very future of home-building that could improve margins and sales significantly even from today's levels. LPX is already market-leading, and this market share could improve even further (hence the talk about TAM).

However, as I interpret your comment, your stance is that this will somehow enable LPX to distance itself from the very fundamental dynamics of the housing market and its cycles, which are the cause of the ups and downs in results, earnings and dividends.

I disagree with this stance, as I've not seen any evidence on a worldwide basis that this is possible.

Also, I don't agree that the pre-fab model will be applicable or desirable everywhere/without limitations on the market. It's definitely a segment that will grow "like a weed", as you say, but to consider this segment as a basis for long-term outperformance against fundamental dynamics of what we're seeing in the company.

I also question the risk/reward ratio of such an investment approach at this time. What returns are you expecting even if this were to materialize? 100%? There are, to my mind, lower-risk investments that would enable returns of that size, and at a higher income level. I don't often agree with GS, and i certainly don't "hate" LPX (not sure how you got that from my article), but in this case, I would reiterate my "HOLD" as well as consideration for profit rotation with the mentioned price target.

What you describe is a maybe. A castle in the sky that "might" happen. We disagree on the likelihood of it happening, what it means, and what you could instead do with your money.

Time will tell what happens :)
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