In this article, we will take a look at the 15 best lumber stocks to buy now.
The lumber market has faced considerable volatility in recent years, driven by a confluence of dynamic and interconnected factors. In 2021, lumber prices surged to unprecedented levels due to the COVID-19 pandemic disrupting supply chains, a surge in home construction boosting demand, and logistical challenges further straining the market. However, this peak was followed by a dramatic price correction as these extraordinary conditions began to stabilize. Currently, lumber prices have plummeted 75% from their May 2021 record high of $1,514 per thousand board feet to just $366, closely matching pre-pandemic levels. The futures market has mirrored this decline, with contract prices for July falling 28% to $466. The following chart by U.S. Bureau of Labor Statistics clearly depicts the change in lumber prices over a five year horizon.
The sharp drop in lumber prices reflects a slowdown in both new home construction and renovations, largely due to high home prices and elevated mortgage rates that have reduced housing affordability. This has led to decreased demand for lumber, with a notable 52% year-over-year plunge in multi-family housing starts and a 2% decline in single-family starts as of May, reported by Fortune. Furthermore, the home renovation market, which had previously supported high lumber prices, is now also weakening. Retailers like Home Depot are seeing declines in sales, particularly for larger projects.
On the supply side, the lumber industry expanded production capacity during the boom years, expecting continued high demand. However, this new supply is now coming to market at a time when demand is low, exacerbating the oversupply situation. Experts predict that lumber prices may stagnate near current levels through the end of 2024, with a possible minor increase. Looking ahead to 2025, some sawmills might cut back production, and interest rate reductions could spur a modest recovery, potentially pushing prices between $500 and $600 per thousand board feet. Investors should be mindful of the ongoing volatility and regional price variations as they consider opportunities in the lumber market. For those looking to navigate the best lumber stocks to buy, the S&P Global Timber & Forestry (GTF) Index provides a valuable benchmark. Designed to measure the performance of companies involved in the ownership, management, or upstream supply chain of forests and timberlands, the index targets a constituent count of 100. This includes forest products companies, timber REITs, paper products firms, paper packaging companies, and agricultural businesses engaged in these sectors. As of August 1, 2024, the index has demonstrated a robust 10-year annualized return of 4.24%, currently valued at 2,012.10. This performance highlights the index’s stability and growth potential, making it a key consideration for investors in the timber and forestry sector.
According to the report from Timberland Investment Resources, investing in timberland presents several notable benefits and considerations. Timberland is a tangible asset that serves as a natural hedge against inflation. As inflation increases, the value of timberland often rises, helping to preserve purchasing power. This characteristic makes timberland an appealing option for investors seeking protection against inflationary pressures. Additionally, timberland offers substantial portfolio diversification due to its typically lower volatility compared to traditional equities. This reduced volatility can contribute to more stable long-term returns, making timberland an attractive choice for investors looking to balance risk and reward. Beyond capital appreciation, timberland investments can also generate a consistent income stream through timber harvesting. This dual benefit of income and appreciation makes timberland a valuable asset class for long-term investors.
The report also underscores the significance of sustainable management practices in timberland investments. Effective management is crucial for maintaining the health and productivity of forestlands while adhering to environmental standards and promoting ecological balance. Sustainable forestry practices, such as selective logging and reforestation, ensure that timberland remains productive and environmentally responsible over the long term. By implementing these practices, investors can mitigate negative environmental impacts and support the economic viability of their timberland assets. Sustainable management not only helps preserve the asset’s value but also aligns with growing environmental and regulatory expectations.
However, the report also identifies several risks associated with timberland investments. Timber prices can be highly variable, influenced by fluctuations in supply and demand, which can impact profitability. Additionally, timberland is vulnerable to natural disasters, such as wildfires, storms, and pest infestations, which can cause significant damage and affect returns. Regulatory changes and evolving environmental policies also pose risks, potentially impacting the operational aspects of timberland management. To effectively navigate these risks, the report emphasizes the importance of selecting well-managed timberland properties and partnering with experienced forestry professionals. Proper due diligence and active management are essential for mitigating these risks and maximizing the potential of timberland investments. Overall, while timberland offers stable growth and diversification benefits, it requires careful management and a long-term perspective to fully realize its potential.
The Food and Agriculture Organization (FAO) predicts a 37% increase in the consumption of primary processed wood products by 2050, according to their latest report. This growth includes materials such as sawnwood, plywood, and wood pulp, expected to reach 3.1 billion cubic meters. The rise is projected to be even higher, up to 23%, if modern wood products like mass timber and man-made cellulose fibers gain greater traction in replacing non-renewable materials. Wood’s renewable and versatile nature makes it a key player in efforts to replace non-renewable resources and address climate change. The FAO emphasizes the need for sustainable forest management and increased production from both naturally regenerated and planted forests to meet future demand. Investments totaling around $40 billion annually will be necessary to expand production, with an additional $25 billion for modernization. The sector might face challenges in maintaining employment levels and ensuring adequate training for a more sophisticated workforce. As demand for wood energy grows, especially in developing regions, balancing traditional fuelwood use with modern biomass energy will be crucial.
According to the National Association of Home Builders (NAHB), single-family home construction is expected to rise in 2024 despite ongoing supply-side challenges. Higher interest rates have impacted the housing market over the past two years, but with the Federal Reserve anticipated to lower rates in the latter half of 2024, mortgage rates are expected to decrease. This should stimulate homebuilding, although supply-side issues like rising prices and shortages of materials and labor will persist. The NAHB projects single-family starts to increase by 4.7% in 2024 and by 4.2% in 2025, but notes that this growth will not fully address the nation’s housing deficit of approximately 1.5 million units. Despite the forecasted increase in construction, the multifamily housing market faces challenges, with a 19.7% decline in multifamily starts anticipated for 2024 due to tight credit conditions. However, with a high volume of apartments currently under construction, rent growth is expected to slow, potentially easing inflation. Builders remain optimistic, with a majority planning to increase their activities, although they face hurdles including high regulatory costs and fluctuating land prices. The demand for housing continues to shift, with varying generational preferences influencing market dynamics. Addressing these challenges requires balancing new construction with sustainable practices and increased housing supply.
Aerial shot of a building site stocked with lumber and other building materials.
Our Methodology
We shortlisted the holdings of iShares Global Timber & Forestry ETF, ranked them by the number of hedge funds in each stock, and shared the 15 most popular timber and forestry stocks below. Basically our articles presents the best lumber and timber stocks to buy according to hedge funds.
15. Stella-Jones Inc. (OTC:STLJF)
Number of Hedge Fund Holders: 3
Stella-Jones Inc. (OTC:STLJF) produces and sells pressure-treated wood products in Canada and the U.S., operating through two segments: Pressure-Treated Wood, and Logs and Lumber. It supplies railway ties and timbers for railroad operators and wood utility poles for electrical and telecom companies. On July 8, RBC Capital downgraded Stella-Jones Inc. (OTC:STLJF) from Outperform to Sector Perform and set a price target of Cdn$94.00. The analyst acknowledged the company’s strong management and good positioning for long-term infrastructure investments but noted that the stock’s current valuation is at the high end of its five-year range, reflecting these trends. RBC Capital also expressed concerns about new pole capacity in the industry, which could challenge pricing power and impact Stella-Jones’s revenue and margins in 2025. While volume growth is a positive, it is offset by risks in pole pricing and current valuation, leading the analyst to view the risk-reward profile as balanced. In the latest quarter, Stella-Jones Inc. (OTC:STLJF) reported revenue of $564.37 million, beating expectations by $4.56 million, with a year-to-date price return of 15.46%, close to the S&P 500’s 15.81%.
During Q1, 2024 the count of hedge funds holding positions in Stella-Jones Inc. (OTC:STLJF) rose to 3 from 2 in the prior quarter, as reported by Insider Monkey’s database encompassing 920 hedge funds. These holdings collectively amount to around $0.09 million.
14. LL Flooring Holdings, Inc. (NYSE:LL)
Number of Hedge Fund Holders: 5
LL Flooring Holdings, Inc. (NYSE:LL) operates as a multi-channel specialty retailer of hard and soft surface flooring and accessories, including waterproof hybrid resilient, waterproof vinyl plank, solid and engineered hardwood, laminate, bamboo, and tile. In the latest quarter, announced on May 8, the company reported an EPS of -$1.04, missing expectations by $0.77, and a revenue of $188.49 million, falling short by $30.11 million. On July 3, it was reported that LL Flooring Holdings, Inc. (NYSE:LL) is considering filing for Chapter 11 bankruptcy due to struggles with higher interest rates and declining home renovation activity.
LL Flooring Holdings, Inc. (NYSE:LL) is also attempting to sell a distribution center in Virginia to improve cash reserves and is negotiating with banks to modify its credit agreement due to potential liquidity rule violations. In the first quarter, net sales dropped 21.7% to $188.5 million compared to the previous year, attributed to a difficult macroeconomic environment and brand awareness challenges. LL Flooring Holdings, Inc. (NYSE:LL), which has over 400 locations, changed its name from Lumber Liquidators in 2020 after settling securities fraud allegations for $33 million in 2019. In another development, on July 10, F9 Investments announced the election of all three of its nominees—Tom Sullivan, Jason Delves, and Jill Witter—to LL Flooring’s Board of Directors.
In the first quarter of 2024, there were 5 hedge funds holding positions in LL Flooring Holdings, Inc. (NYSE:LL), as compared to 6 in the previous quarter according to Insider Monkey’s database. The total value of these holdings is approximately $2.13 million. D. E. Shaw held the largest stake among these hedge funds during this period.
O’keefe Stevens Advisory stated the following regarding LL Flooring Holdings, Inc. (NYSE:LL) in its fourth quarter 2023 investor letter:
“LL Flooring Holdings, Inc. (NYSE:LL) – We initiated and closed our position in LL Flooring (LL) during the quarter. This is an unusually short holding period for us, though it was the intention when we initiated the position. LL received an all-cash takeover offer of $5.85 from Live Ventures (LIVE). LL was and continues to be in a precarious position with a troubled balance sheet and a market share donor. The offer acted as a lifeline that we believed management could not deny, as the business is headed for bankruptcy, barring a dramatic rebound in repair and remodel spend. After writing a letter to the board and speaking with Charles Tyson (CEO), management is unwilling to “fire” themselves, regardless of whether it’s in the best interest of shareholders. Management went on about how they will weather the downturn and invest in the future, even when there isn’t one. On the one hand, we were unlucky to establish the position shortly before the Bleeker Street short report. However, we were able to break even on the trade.”
13. Mercer International Inc. (NASDAQ:MERC)
Number of Hedge Fund Holders: 11
Mercer International Inc. (NASDAQ:MERC), together with its subsidiaries, manufactures and sells northern bleached softwood kraft (NBSK) and northern bleached hardwood kraft (NBHK) pulp worldwide, operating through two segments: Pulp and Solid Wood. The company also produces and distributes pulp, electricity, and chemicals through its pulp mills. In the latest quarter, announced on May 9, Mercer International Inc. (NASDAQ:MERC) reported normalized EPS of $0.01, beating expectations by $0.12, and revenue of $553.43 million, surpassing estimates by $45.51 million. The company’s forward dividend yield is 3.91%, with an annual payout of $0.30. On July 18, CIBC analyst Hamir Patel maintained a hold rating on Mercer International Inc. (NASDAQ:MERC) and adjusted the target price from $11 to $10. The number of hedge funds in Insider Monkey’s database owning stakes in Mercer International Inc. (NASDAQ:MERC) remain at 11 in Q1 2024, as similar to the preceding quarter. The consolidated value of these stakes is nearly $43.40 million.
12. PotlatchDeltic Corporation (NASDAQ:PCH)
Number of Hedge Fund Holders: 14
PotlatchDeltic Corporation (NASDAQ:PCH) is a leading REIT owning nearly 2.2 million acres of timberlands across seven states and operating six sawmills, a plywood mill, a real estate development business, and a timberland sales program. In Q2, PotlatchDeltic Corporation (NASDAQ:PCH) reported an EPS of $0.17, beating estimates by $0.08, and revenue of $320.7 million, surpassing the consensus of $305.82 million. The stock closed at $43.18 on August 1, up 10.63% over the past month but down 17.69% over the past year. It has a forward dividend yield of 4.06%, with an annual payout of $1.80 and a payout ratio of 580.65%. The dividend has grown at a 2.38% rate over five years and has increased for four years. On July 31, RBC Capital raised its price target for PotlatchDeltic Corporation (NASDAQ:PCH) to $50 from $46, maintaining an Outperform rating, citing the company’s exposure to a tightening lumber market and potential growth from solar and other NCS businesses.
In the first quarter of 2024, there were 14 hedge funds holding positions in PotlatchDeltic Corporation (NASDAQ:PCH), as compared to 12 in the previous quarter according to Insider Monkey’s database. The total value of these holdings is approximately $101.01 million. Mason Hawkins’s Southeastern Asset Management held the largest stake among these hedge funds during this period.
Longleaf Partners Small-Cap Fund stated the following regarding PotlatchDeltic Corporation (NASDAQ:PCH) in its Q2 2024 investor letter:
“PotlatchDeltic Corporation (NASDAQ:PCH) – Timberland and mill company PotlatchDeltic was a detractor after we initiated a position in the first quarter. We have owned this company in various forms over the years, including Potlatch in the late 2000s/early 2010s, Deltic twice before and post-merger PotlatchDeltic in the late 2010s/early 2020s. We have the opportunity to invest again because the stock market is overly focused on the challenging near-term housing market. This most impacts the lumber mill segment, which is less than 20% of our appraisal. The company’s mills are currently operating at break-even, which is commendable in such a tough environment, demonstrating cost efficiency relative to peers. Long-term value will be driven by the vast majority of the value that comes from high-quality timberlands in the southern US and Idaho. While log prices are depressed currently, timberland has a long history of growing value and alternative use development that is not currently recognized in the stock price. For example, the growing solar market is driving developers to pay $10,000 to $15,000 per acre for land we previously valued at $1,500 to $2,000 per acre. Additionally, PotlatchDeltic has a strong management team that we know well, with a proven history and the ability to buy back stock at a significant discount to the private market net asset value. Meanwhile, we benefit from a solid, tax-efficient dividend.”
11. Clearwater Paper Corporation (NYSE:CLW)
Number of Hedge Fund Holders: 15
Clearwater Paper Corporation (NYSE:CLW) manufactures and supplies bleached paperboards and consumer tissues globally. It operates in two segments: Pulp and Paperboard, and Consumer Products. The Pulp and Paperboard segment produces and markets bleached paperboard used for folding cartons, liquid packaging, and other items, along with hardwood and softwood pulp, offering custom sheeting, slitting, and cutting services.
On July 22, Clearwater Paper Corporation (NYSE:CLW) agreed to sell its tissue business to Sofidel America Corporation for $1.06 billion. The sale is part of Clearwater’s strategy to become a leading paperboard supplier in North America. The transaction is valued at six times the Adjusted EBITDA of the tissue segment for the year ending March 31, 2024. Clearwater expects net proceeds of approximately $850 million, which will be used to reduce debt and invest in growth. The deal is expected to close in late 2024, pending customary conditions.
In the latest quarter, announced on April 29, Clearwater Paper Corporation (NYSE:CLW) reported normalized EPS of $1.43, beating estimates by $0.32, with revenue of $496.2 million, missing by $11.8 million. The stock has gained 48.95% YTD, outperforming the S&P 500’s 14.19% increase.
The number of hedge funds in Insider Monkey’s database owning stakes in Clearwater Paper Corporation (NYSE:CLW) grew to 15 in Q1 2024, as compared to 12 in the preceding quarter. The consolidated value of these stakes is nearly $32.72 million. Among these hedge funds, D. E. Shaw was the company’s leading stakeholder in Q1.
Wasatch Micro Cap Value Strategy stated the following regarding Clearwater Paper Corporation (NYSE:CLW) in its first quarter 2024 investor letter:
“As for our sells, we exited the RMR Group, Inc. (RMR) and Clearwater Paper Corporation (NYSE:CLW). RMR owns, develops and manages real-estate properties with a focus on senior-living communities, hotels, resorts, cruise ships and full-service travel centers. Clearwater Paper manufactures consumer tissue, bleached paperboard and wood products. We had invested in both companies when we thought they were inexpensive. After their stock prices rose to the point where we saw less upside, we decided to sell.”