Timber/lumber has long been a staple commodity of the world, providing wood products for everything from the houses we live in to the paper we write on. As an investment, however, timber does not exactly scale the ranks of popularity. When most people think of commodities, assets like gold, natural gas, and crude oil are undoubtedly the first that come to mind. But timber has a compelling investment thesis that has roped in a number of individuals and institutions over the years [for more timber news and analysis subscribe to our free newsletter].
The Benefits of Timber
Because timber is not the sexiest asset out there, some investors need a bit of a prod to take a deeper look into the benefits it offers. The price of timber has risen by an average of 5% for the past century, and those gains include strong performances during some of the worst markets in U.S. history. “During America’s last major inflationary period – from 1973 to 1981, when inflation averaged 9.2% – timberland values increased by an average of 22% per year” writes Larry D. Spears.
Since the beginning of the 20th century timber has outpaced the S&P 500 and has risen by approximately 15% each year since 1987 (save one bad year during the U.S. housing crash). During the Great Depression, when stocks fell roughly 70%, timber investments soared by more than 200%. Moving forward to the most recent recession, the S&P dipped more than 35% in 2008 while the wooden commodity actually gained 9.5%. At a time when investors are starting to lose faith in stocks in general, those numbers are very enticing [see also Peter Schiff: The Only Way To Fix The Economy Is To Let It Fail].
With those impressive figures in mind, we outline the three biggest Timber companies by market cap.
Weyerhaeuser Company (NYSE:WY)
Quick Stats as of (9/17/2012)
Market Cap: $14.5 billion
EPS: 0.65
Avg Vol: 4.6 million
Beta: 1.61
Weyerhaeuser is a REIT with its grasp firmly placed in the timber industry. The company grows and harvests trees to be used for housing, pulp, paper, and a number of other uses. WY manages approximately 6.4 million acres of forestland and has licenses on a total of 13.9 million acres. The stock comes in as the largest timber firm with a solid $14+ billion in market cap. It has also established itself as an investor favorite, trading nearly 4.6 million times each day. The majority of its underlying financials look solid, but it should be noted that the company has relatively high debt levels, with a debt/equity ratio of more than 100. One of WY’s biggest draws comes from its handsome 2.2% dividend yield, putting it on the radar for income investors everywhere.
Plum Creek Timber Co. Inc. (NYSE:PCL)
Quick Stats as of (9/17/2012)
Market Cap: $7.1 billion
EPS: 1.09
Avg Vol: 745,000
Beta: 0.97
Plum Creek is the largest private landowner in the U.S. as it maintains its status as one of the biggest and best in the industry. Another REIT, PLC’s products include a wide variety of lumber assets like plywood and wood chips. Like WY, Plum Creek is financed by a heavy debt load, but it has been struggling as of late, with a -23% quarterly earnings growth year-over-year. Still, its stock performance is impressive as it boasts 22% gains in the trailing year, despite sluggish growth. Add a 3.8% dividend yield on top of that, and you have one of the most enticing plays in the timber world [see also Three Commodities to Bet With Buffett].
Rayonier Inc. (NYSE:RYN)
Quick Stats as of (9/17/2012)
Market Cap: $6.2 billion
EPS: 2.24
Avg Vol: 770,000
Beta: 0.93
Like most of the larger timber companies (including the two aforementioned stocks) RYN is not a pure play, as it has multiple operating segments that do not all focus on timber. Still, this commodity accounts for a large portion of the firm’s revenues, earning it a spot on this list. The underlying financials of this stock look pretty solid, with an EPS of 2.24 and a relatively low debt/equity ratio in comparison to the two other biggest competitors. Finally, investors will notice the 3.4% dividend yield from RYN, keeping pace with both PLC and WY on the dividend side of things.
This article was originally written by Jared Cummans, and posted on Commodity HQ.
