We recently compiled a list of the 10 Best Lumber Stocks To Buy Right Now. In this article, we are going to take a look at where West Fraser Timber Co. Ltd. (TSX:WFG) stands against the other best lumber stocks.
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.
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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.
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.
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.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A lumber mill with pristine forests in the background, showing the company’s commitment to renewable energy.
West Fraser Timber Co. Ltd. (TSX:WFG)
Number of Hedge Fund Holders: 21
West Fraser Timber Co. Ltd. (TSX: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. (TSX: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. (TSX: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. (TSX: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. (TSX: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. (TSX:WFG) is well-positioned for future growth, making it an attractive investment opportunity in the lumber sector.
Overall, WFG ranks 10th on our list of the best lumber stocks to buy right now. While we acknowledge the potential of WFG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than WFG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
