We recently compiled a list of the 10 Best Land and Timber Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Howard Hughes Holdings Inc. (NYSE:HHH) stands against the other land and timber stocks.
The land and timber industry supports various sectors such as construction, furniture manufacturing, and paper production. The industry is forecasted to be worth $342.55 billion in 2024 and is projected to reach $464.94 billion by 2029, reflecting a healthy compound annual growth rate (CAGR) of 6.3%. In fact, The World Bank predicts that the push for net zero emissions by 2050 could quadruple global timber demand.
This growth is fueled by a rising preference for wooden buildings as compared to concrete buildings since wooden construction produces very little waste and saves time. Moreover, concerns regarding CO2 emissions by the construction industry, which make up 36% of total emissions globally, have led to the adoption of timber in place of steel and concrete. This is because timber’s role as a low-carbon alternative in construction helps decarbonize the industry. Furthermore, wood’s natural ability to absorb CO2 makes it a more sustainable solution for the construction industry.
In addition to construction, timber is also used for wood fuel and industrial purposes. Around 90% of wood is used for fuel in Africa, Asia, and South America primarily, while 90% of wood in North America and 80% in Europe is utilized for industrial purposes.
The skyrocketing demand for timber raises a critical question: how can we ensure a long-term supply? Unlike fossil fuels, trees are renewable, but their growth is slow and takes 30 to 100 years. Sustainable practices rely on establishing new plantations, but finding suitable land is becoming difficult due to competition from other uses. Currently, most timber comes from natural forests: softwoods in the north and hardwoods in the south. However, this reliance is unsustainable.
Although plantations make up only 3% of the world’s forests, they already provide about 50-60% of timber production. With the increasing demand for timber comes the responsibility to practice environmental stewardship. According to the Managing Director of Forestry at Gresham House, relying on well-managed plantations is needed for a sustainable timber supply. Certification programs like the Forest Stewardship Council (FSC) can help ensure responsible forest management, protecting biodiversity and ecological functions.
Over 200 million hectares of global forests are FSC-certified, demonstrating a growing commitment to sustainability within the industry. This number is expected to reach 300 million hectares by 2026. Moreover, consumers’ growing preference for certified wood products is driving the demand for responsibly sourced timber. Another solution for balancing the growing demand for timber products with sustainable forest management practices is investment in reforestation. Initiatives like the Bonn Challenge aim to restore 350 million hectares of degraded land by 2030.
Our Methodology
To shortlist the best land and timber stocks to buy according to hedge funds, we relied on Insider Monkey’s extensive database of 920 hedge funds as of Q1 2024. We picked the land and timber stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? 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).
An aerial view of a real estate property with multiple buildings and pavement in the foreground.
Howard Hughes Holdings Inc. (NYSE:HHH)
Number of Hedge Fund Holders: 32
Howard Hughes Holdings Inc. (NYSE:HHH), a Texan real estate giant, manages a diverse portfolio. It owns and operates established properties like shopping centers and apartments, while also focusing on long-term development through Master-Planned Communities (MPCs) in cities like Las Vegas, Houston, and Phoenix.
Howard Hughes Holdings Inc. (NYSE:HHH) is currently constructing One Bridgeland Green, the first mass timber office building in greater Houston. Situated within the 70-acre mixed-use development Village Green at Bridgeland Central, this Class A office space will cover around 49,000 square feet.
Howard Hughes Holdings Inc. (NYSE:HHH) recently reported its first-quarter 2024 results, maintaining its full-year guidance for key segments like Master-Planned Communities (MPCs) and condo sales. The company anticipates a profit of $300 million before taxes from MPCs, $250 million in net operating income (NOI) from its operating assets, and $700 million in condo sales with a profit margin of 29%.
Furthermore, there was improved performance in office and multi-family properties, resulting in a 7% increase in total operating assets NOI. New home sales also saw a significant rise of 24% compared to the same quarter of 2023.
There is a consensus Buy rating from analysts for Howard Hughes Holdings Inc. (NYSE:HHH) stock. The average price target stands at $86.67. This suggests that analysts believe the stock price has room to grow. Howard Hughes Holdings Inc. (NYSE:HHH) ranks on our main list of the best land and timber stocks to buy according to hedge funds.
Here’s what Pershing Square Holdings said about Howard Hughes Holdings Inc. (NYSE:HHH) in its Q4 2023 investor letter:
“Howard Hughes Holdings Inc. (NYSE:HHH) delivered strong business performance in 2023, highlighting the high-quality nature of its well-located master-planned communities (“MPCs”) and resilient business model.
In its land sales segment, the company generated a record $341 million in full-year profits. New home sales in HHH’s communities, a leading indicator of future land sales, increased an impressive 45% in 2023. The surge in new home sales continues to be driven by a significant shortage of resale housing inventory as existing homeowners are reluctant to give up their low-rate mortgages. This dynamic has led to robust homebuilder demand against a backdrop of limited supply of vacant lots in HHH’s MPCs. The resulting supply-demand imbalance has supported strong pricing growth with the company’s average price per acre for residential land sold exceeding $1 million in Q4 2023, up 22% year-over-year, a record-high milestone for the company…” (Click here to read the full text)
Overall HHH ranks 5th on our list of the best land and timber stocks to buy. You can visit 10 Best Land and Timber Stocks to Buy According to Hedge Funds to see the other land and timber stocks that are on hedge funds’ radar. While we acknowledge the potential of HHH 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 HHH 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.