In this article, we will discuss the 10 best lumber stocks to invest in. If you want to explore similar stocks, you can also take a look at 5 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).
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Disclosure: None. 10 Best Lumber Stocks To Invest In is originally published on Insider Monkey.
