In this article, we will look at the 10 best lumber stocks to buy right now.
The Global Lumber and Wood Market: An Overview
The global lumber and wood market plays a crucial role in various industries, including construction, furniture, and packaging. As one of the most versatile building materials, lumber is essential for residential and commercial construction, providing structural support and aesthetic appeal. It is also widely used in packaging solutions. The paper and pulp industry is another significant consumer of wood products. Lumber is processed into pulp to produce a wide range of paper products, including newspapers, packaging materials, and tissues. Companies involved in the lumber industry can range from sawmills that cut trees into lumber to manufacturers producing furniture and packaging materials, highlighting the diverse businesses that depend on this essential resource.
According to a report by The Business Research Company, the global wood products market was valued at $750.14 billion in 2023. The market is expected to grow at a compound annual growth rate (CAGR) of 7% during 2024-2028 to reach a value of $1.054 trillion by the end of the forecast period. The Asia-Pacific region was the largest market for wood products globally in 2023.
READ ALSO: 8 Best Plastics Stocks To Invest In Now and 11 Best Small Cap Chemical Stocks to Buy According to Hedge Funds.
Recent trends indicate that the global lumber market is experiencing both challenges and growth opportunities. In the North American market, housing starts can have a direct impact on lumber demand, which is essential for the construction of homes. Factors such as population growth, urban development, and mortgage interest rates can all play a crucial role in determining the level of housing starts.
On December 18, Bloomberg reported a surprising decline in new home construction in the US for November. Housing starts fell by 1.8%, reaching an annualized rate of 1.29 million, marking the slowest pace since July. This decrease was largely attributed to a significant drop in multifamily projects, which fell by over 23%, overshadowing a 6.4% increase in single-family home starts. The rise in single-family construction was primarily driven by a rebound in the South, particularly as areas affected by hurricanes in previous months began to recover.
Despite the increase in single-family homes, the overall outlook for the housing industry has become less optimistic recently. While the South showed a notable improvement, all other regions experienced declines in housing starts.
However, the notable uptick in single-family home construction is a positive trend. As the housing market recovers, the demand for lumber is poised to rise. Another significant trend is the increasing demand for sustainable building materials. Wood is expected to become a preferred choice due to its renewable nature and lower carbon footprint compared to other materials like steel or concrete. Additionally, technological advancements in lumber production contribute to market growth. Innovations in processing and manufacturing techniques are improving efficiency and reducing waste, which helps meet the rising demand without compromising quality.
However, it is important to remember that the lumber and wood industry serves a wide range of sectors, including paper, packaging, pulp, furniture, construction, and even energy production. This diversity allows the lumber market to remain resilient and adaptable to changes in demand across different industries. The global lumber market is vital to several key industries and is poised for growth despite current challenges.
With this background in mind, let’s take a look at the 10 best lumber stocks to buy right now.
An aerial view of a forest, its vastness revealing the lumber industry of the company.
Methodology
To compile our list of the 10 best lumber stocks to buy right now, we used the Finviz and Yahoo stock screeners to find the largest lumber and wood companies. We also reviewed financial media reports and consulted various online resources including ETFs to compile a list of the best lumber stocks. Next, we focused on the top 10 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s Q3 2024 database of 900 elite hedge funds. The 10 best lumber stocks to buy right now are ranked in ascending order based on the number of hedge funds holding stakes in them.
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10 Best Lumber Stocks To Buy Right Now
10. West Fraser Timber Co. Ltd. (NYSE:WFG)
Number of Hedge Fund Holders: 21
West Fraser Timber Co. Ltd. (NYSE:WFG) is a Canadian forestry company that produces a wide range of wood products, including lumber, laminated veneer lumber (LVL), medium-density fiberboard (MDF), oriented strand board (OSB), plywood, pulp, paper, and wood chips. The company has over 60 facilities across Canada, the US, the UK, and Europe, and its products are used in home construction, repair and remodeling, industrial applications, papers, tissue, and box materials.
In the third quarter of 2024, West Fraser Timber Co. Ltd. (NYSE:WFG) reported sales of $1.437 billion, a decrease from $1.705 billion in the second quarter of 2024. The company generated an adjusted EBITDA of $62 million, reflecting a 4% margin. This quarter’s results were impacted by a $32 million lumber export duty expense related to the 2022 calendar year. The company experienced mixed results across its segments. There was strong demand for Spruce-Pine-Fir (SPF) lumber and solid performance in the North American Engineered Wood Products segment. However, Southern Yellow Pine (SYP) lumber demand remained weak due to ongoing challenges in the repair and remodeling markets. Despite these pressures, West Fraser Timber Co. Ltd. (NYSE:WFG) reported a trailing four-quarter adjusted EBITDA of $630, which is an improvement from the $561 million reported at year-end 2023.
The company’s balance sheet remains strong, with over $2 billion in liquidity at the end of the third quarter. West Fraser Timber Co. Ltd. (NYSE:WFG) repurchased 446,460 shares for $35 million during the quarter, demonstrating its commitment to returning value to shareholders.
In September 2024, West Fraser Timber Co. Ltd. (NYSE:WFG) announced it would indefinitely curtail operations at its Lake Butler sawmill in Florida due to high fiber costs and soft lumber markets. This decision aligns their capacity with current demand levels. With its diversified product offerings, strong financial position, and proactive management strategies, West Fraser Timber Co. Ltd. (NYSE:WFG) is well-positioned for future growth, making it an attractive investment opportunity in the lumber sector.
9. UFP Industries Inc. (NASDAQ:UFPI)
Number of Hedge Fund Holders: 22
UFP Industries Inc. (NASDAQ:UFPI) is a holding company that manufactures and distributes products for construction, packaging, and industrial applications and operates over 200 facilities worldwide. The company is a key supplier of lumber to the manufactured housing industry. It operates through its subsidiaries: UFP Packaging, UFP Construction, and UFP Retail Solutions. UFP Industries Inc. (NASDAQ:UFPI) ranks among the best lumber stocks to buy.
In the third quarter of 2024, the company reported net sales of $1.65 billion, a 10% decrease compared to the previous year. This decline was attributed to a 3% drop in organic unit sales and a 7% reduction in selling prices, primarily due to a 21% decrease in the price of Southern Yellow Pine, which makes up about two-thirds of the company’s lumber purchases. UFP Industries Inc. (NASDAQ:UFPI) faced a challenging market due to softer demand and pricing pressure that affected both revenue and profit margins.
To address these difficulties, UFP Industries Inc. (NASDAQ:UFPI) is implementing several strategic initiatives. The company is looking to consolidate facilities to enhance capacity utilization and cut operating costs. UFP Industries Inc. (NASDAQ:UFPI) is also exploring strategic alternatives for certain business units that do not align with long-term goals. By fully implementing these initiatives, the company expects to achieve over $70 million in annual cost reductions.
UFP Industries Inc. (NASDAQ:UFPI) is focused on future growth. The company plans to invest approximately $1 billion over the next five years to pursue strategic acquisitions and invest in organic growth opportunities. This includes capital investments of $300 million in 2024 for automation, technology upgrades, and capacity expansion. This commitment to capital investment will help drive organic growth and improve operational efficiency. With a strong focus on proactive management, UFP Industries Inc. (NASDAQ:UFPI) presents an attractive investment opportunity in the lumber sector.
