In this piece, we will take a look at the ten best lumber stocks to invest in 2023. If you want to skip our overview of the lumber industry and how recent developments are shaping it, then take a look at the 5 Best Lumber Stocks To Invest In 2023.
Lumber has been one of the most important natural resources for humanity’s progress. It has been used for building, construction, and transportation for centuries, and was the primary building material for vehicles and houses before the dawn of the industrial era that enabled mass production of aluminum, steel, and other metals.
At the same time, humanity’s reliance on lumber has had its drawbacks as well. Trees are an integral part of the world’s ecology, and they play a crucial role in moderating temperatures and ensuring high quality air by removing pollutants. And even though these days lumber is not relied on as extensively for industrial growth as it was in the past, its usage has still picked up due to a growth in the global population.
This continued reliance on lumber is evident in the size of the global sawn wood market. Sawn wood is the end product that is a result of felling and processing trees, and estimates suggest that this industry was worth $751 million this year and is slated to grow at a compounded annual growth rate (CAGR) of 0.74%. We also took a look at the Top 20 Largest Timber Exporting Countries in the World and discovered that the top three nations were Canada, Germany, and the U.S. since they exported $75.6 billion worth of timber in 2021. However, the growing global demand for lumber and timber is also leading to higher deforestation, and countries such as Australia have introduced logging bans which have also created uncertainty for workers who are employed in the lumber industry.
Shifting to the corporate side of the lumber industry, lumber prices fluctuate with the broader economic environment. Specifically, it’s the construction industry that is the primary driver of lumber prices. This led to prices dropping in 2022 end, as rapid interest rate hikes by the Federal Reserve and high inflation made their mark on the construction industry. In fact, the drop in lumber prices last year was quite hefty as well. The price of 1,000 board feet, which stood at $1,465 in February 2022, tanked to $432 in November 2022 for a substantial drop that was greater than 70%. In 2023, the lumber prices were on an upward trajectory once again, as notable events such as widespread fires in Canada ended up disrupting the market.
In terms of market value, out of the 15 Biggest Lumber Companies in the World, the top three are West Fraser Timber Co. Ltd. (NYSE:WFG), Canfor Corporation (OTC:CFPZF), and Weyerhaeuser Company (NYSE:WY). Analyzing their latest financial performance, West Fraser’s third quarter earnings saw its revenue grow by a small $97 million sequentially while the earnings grew by $159 million profit overturned a previous loss of $131 million. Management shared that a key reason behind the lackluster financial performance was a continuation of slow demand from previous quarters.
Weyerhaeuser Company’s 33 cents EPS in Q3 missed analyst estimates by a cent. This came as the firm’s wood products sales dropped by 13% to $1.54 billion during the third quarter, with the demand for wood from the residential construction sector taking a sizeable hit due to homebuyers struggling to make purchases in a high interest rate and mortgage rate era. Adding to the firm’s woes, it also had to deal with harvesting restrictions during the quarter as authorities became cautious after the devastating wildfires.
Looking at the future, here’s what Weyerhaeuser Company (NYSE:WY)’s outlined during its third quarter earnings conference:
Our macro view on the housing market is largely unchanged. Although we have seen some recent headwinds in the multifamily segment in response to increasing interest rates. Importantly, however, the single-family segment has remained resilient year-to-date. In fact, despite the elevated mortgage rate environment, single-family starts increased 3% quarter-over-quarter, and new home sales were up in September. As a reminder, single-family construction is a much more important demand driver for our business relative to multifamily. In the near-term, we continue to believe that the underlying housing demand is solid.
Even at higher interest rates, we expect single-family demand to hold up reasonably well given the limited inventory of existing homes on the market, combined with the home builders ability to offer mortgage rate buy downs and other incentives. That said, buyer sentiment will continue to be influenced by affordability challenges brought about by increased mortgage rates and elevated home prices, as well as the state of the overall economy. As a result, we continue to anticipate a choppier housing market in the near-term relative to the last couple of years. I will note, however, our long-term view on housing fundamentals continues to be very favorable, supported by strong demographic trends and a vastly under built housing stock.
With these details in mind, let’s take a look at the best lumber stocks to buy. Some notable names are Weyerhaeuser Company (NYSE:WY), Louisiana-Pacific Corporation (NYSE:LPX), and Simpson Manufacturing Co., Inc. (NYSE:SSD).
Photo by René Schubert on Unsplash
Our Methodology
To compile our list of the best lumber stocks to buy, we ranked all lumber and associated firms by the number of hedge funds that had invested in them during Q3 2023. Out of these, the top ten stocks with the highest number of hedge fund investors were chosen as the best lumber stocks.
Best Lumber Stocks To Invest In 2023
10. Koppers Holdings Inc. (NYSE:KOP)
Number of Hedge Fund Investors In Q3 2023: 14
Koppers Holdings Inc. (NYSE:KOP) is an industrial company that sells wood products and chemicals. Despite a slowdown in the lumber industry this year, the diversified business model that sees it target several industries has helped Koppers Holdings Inc. (NYSE:KOP) since the firm has beaten analyst EPS estimates in all four of its latest quarters.
By Q3 2023 end, 14 out of the 910 hedge funds part of Insider Monkey’s database had held a stake in Koppers Holdings Inc. (NYSE:KOP). David Rosen’s Rubric Capital Management was the biggest shareholder among these which was worth $45 million.
Louisiana-Pacific Corporation (NYSE:LPX), Weyerhaeuser Company (NYSE:WY), and Simpson Manufacturing Co., Inc. (NYSE:SSD) are met by Koppers Holdings Inc. (NYSE:KOP) in our list of the best lumber stocks to buy.
9. Rayonier Inc. (NYSE:RYN)
Number of Hedge Fund Investors In Q3 2023: 16
Rayonier Inc. (NYSE:RYN) is a real estate investment trust that invests in timberland properties. Unlike Koppers Holdings, the lumber slowdown has translated into Rayonier Inc. (NYSE:RYN)’s income statement, as it has missed analyst estimates in three of its four latest quarters.
During September 2023, 16 out of the 910 hedge funds surveyed by Insider Monkey had bought the firm’s shares. Rayonier Inc. (NYSE:RYN)’s largest hedge fund investor in our database is Ian Simm’s Impax Asset Management as it owns $198 million worth of shares.
8. Boise Cascade Company (NYSE:BCC)
Number of Hedge Fund Investors In Q3 2023: 18
Boise Cascade Company (NYSE:BCC) is a downstream lumber company that sells wood products to the construction industry. The firm has beaten analyst EPS estimates in three out of its four latest quarters, and analysts have set an average share price target of $116 for a small $1.5 share price upside.
By the end of this year’s third quarter, out of the 910 hedge funds tracked by Insider Monkey, 18 were Boise Cascade Company (NYSE:BCC)’s investors. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital owned the biggest stake which is worth $46 million and comes via 447,713 shares.
7. UFP Industries, Inc. (NASDAQ:UFPI)
Number of Hedge Fund Investors In Q3 2023: 18
UFP Industries, Inc. (NASDAQ:UFPI) is a diversified industrial company that sells wood and lumber products to the construction, retail, packaging, and other industries. It is preparing in advance for a potential recovery in the lumber industry these days, and for this purpose, UFP Industries, Inc. (NASDAQ:UFPI) announced in November 2023 a new business to business digital platform for lumber products.
Insider Monkey took a look at 910 hedge fund holdings for their Q3 2023 shareholdings and discovered that 19 had bought and owned UFP Industries, Inc. (NASDAQ:UFPI)’s shares.
6. West Fraser Timber Co. Ltd. (NYSE:WFG)
Number of Hedge Fund Investors In Q3 2023: 19
West Fraser Timber Co. Ltd. (NYSE:WFG) is a pureplay lumber company that sells wood products. Its shares are rated Strong Buy on average and analysts have set an average share price target of $110.
As of Q3 2023 end, 19 out of the 910 hedge funds part of Insider Monkey’s database had invested in the company. West Fraser Timber Co. Ltd. (NYSE:WFG)’s largest hedge fund investor is Murray Stahl’s Horizon Asset Management since it owns 356,916 shares that are worth $25.8 million.
Weyerhaeuser Company (NYSE:WY), West Fraser Timber Co. Ltd. (NYSE:WFG), Louisiana-Pacific Corporation (NYSE:LPX), and Simpson Manufacturing Co., Inc. (NYSE:SSD) are some top lumber stocks on the hedge fund radar.
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Disclosure: None. 10 Best Lumber Stocks To Invest In 2023 is originally published on Insider Monkey.