We recently compiled a list of the 15 Best Lumber Stocks To Buy Now. In this article, we are going to take a look at where LL Flooring Holdings, Inc. (NYSE:LL) stands against the other lumber stocks.
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.
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.
A person standing in a showroom admiring the range of laminate flooring.
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.”
Overall LL ranks 14th on our list of the best lumber stocks to buy. While we acknowledge the potential of LL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LL 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.
