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Lumber and Tax Hikes

Written by Briton Ryle
Posted April 26, 2021

Apparently, there are only two places to invest these days. You can go with tech stocks and hope they return to their 2020 COVID trade status. Or you can go with commodities for the 2021 reopening trade. 

Today, even Popular Mechanics is asking the million-dollar question: "What’s the deal with our wood problem?"

As much as I’d like to hear what Beavis and Butt-Head have to say on the subject, my Alpha Profit Machine tends to give the more profitable answers. Earlier this month, on April 5, the Machine zeroed in on a lumber company, Resolute Forest Products (NYSE: RFP). 

Subscribers got in the stock a bit over $11. Today it’s pushing over $16. Obviously, surging lumber prices have helped. But this company remains ridiculously cheap. The forward P/E is 4, 2021 earnings estimates have risen around 75% in the last 30 days, and there’s heavy call option buying, with traders anticipating prices as high as $20 a share over the next month. 

Still, you gotta wonder how long the bull market for lumber prices will last. Inventories are about back to 2019–2020 levels. But with building permits and construction spending running 20%–40% higher than 2019–2020 levels, demand for lumber looks like it could persist for the balance of this year at least…

Which is why those 2021 earnings estimates for Resolute Forest Products have moved so strongly. Last year, the company paid a $1.50 special dividend in addition to share buybacks. I wouldn’t be surprised to see another special dividend before 2021 is over. 

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I just got a message from Angel Publishing’s amazing customer service team. One of my Wealth Advisory subscribers, Jeff from Illinois, sent them this email: 

Brit, you are kicking ass this week, and when you kick ass I make rain up in here! Just wanted to let you guys know, since December when I signed up as a lifetime member I have made $78,000.00. I want to thank you all, have a great weekend.

Messages like this, yeah, they mean a lot. And I’m gonna call my partner at The Wealth Advisory to bask in the glow too. I brought Jason Williams on to TWA six years ago, I think. He was a disillusioned Wall Streeter who had just told Morgan Stanley to pack sand. That makes you a damn American hero in my book. 

We write for guys like Jeff in Illinois. And our Wealth Advisory portfolio has an average gain of 178% on 28 positions. Not... too… shabby.

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This market sure seems like it wants to move higher. We started last week with a couple ugly down days, and stocks clearly did not like Biden’s capital gains tax idea that was floated on Thursday. And still, that powerful move Friday made for a pretty nice-looking end to the week. 

About that capital gains tax idea, I really don’t get it. Most people would say that one of the big reasons that the wealth gap has been growing is because of investment. Wealthy people have a surplus that can be invested. Lower income people do not. So why in the world would you want to disincentivize investing?

Because if you tax cap gains as high as 40%, that’s what you’re doing. You’re telling the wealthy to find another way to grow their wealth. And they will sell stocks. Valuations will come down, IRA and 401(k) accounts will be worth less… there’s basically nothing good that comes from this. 

If you wanna close the wealth gap, how about finding a way to incentivize investing, especially for those with lower incomes? Don’t punish investing with higher taxes; reward it.

The great thing about investing is that it doesn’t have to be a zero-sum game. Nobody has to lose for others to win. 

Of course bad decisions and unexpected events will cost some people. That’s inevitable. It doesn’t change the fact that over time, economies grow, earnings improve, and the best companies will see higher share prices. 

It really can be that simple.

Until next time,

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Briton Ryle

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.

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