“Timber!” We’ve been hearing a lot of that in the forestry sector lately. And by the look of the housing market, that cry should continue to ring out.
“The US housing market is continuing to improve,” proclaims WebWire.
“Lumber and forest-product stocks have been on a huge tear over the past year as the U.S. housing market recovers,” echoes Canadian newspaper The Financial Post.
After a number of years of abysmal new home sales and construction projects, coupled with tumbling housing prices over that same period, so many of the homes that could be bought have been bought. And now there is a shortage.
“Lower inventories and limited sales of foreclosure homes,” continues WebWire, “… have resulted in an increased number of housing starts and higher demand for lumber.”
This, of course, has lit a fire under the price of lumber products as of late. “The strong lumber market has pushed sawlog prices upward throughout North America. As reported in the North American Wood Fiber Review, prices for Douglas-fir sawlogs in the Western US reached a five-year high in the 4Q/12 and prices continued upward in the 1Q/13 because of higher log demand both from domestic sawmills and from log buyers in Asia,” quantifies WebWire.
“Sawlog prices have also inched up in Coastal British Columbia and Eastern Canada as a result of tighter log supply,” it adds. “With the improved housing market in the US and higher lumber prices, it can be expected that sawmills will increase the consumption of logs and that the Southern states will follow the rest of North America with upward trending log prices during 2013.”
For a snap shot of lumber’s recent rise, we need only look at the iShares S&P Global Timber & Forestry Index Fund (ETF), aptly symbolized “WOOD” (NASDAQ:WOOD).
After slumping in the first half of 2011, WOOD laid down a hard floor around the $35 area. But since June of 2013, it has axed a path up to over $49, a gain of over 40% in the past 10 months.
If you are worried you missed the spurt, the Financial Post reassures, “There is still more room for prices to rise thanks to the emergence of a ‘super cycle’ in the underlying commodity, say analysts.”
One such analyst is Arthur Salzer, chief executive at Northland Wealth Management Inc. in Markham, Ontario, Canada, whom the paper quotes:
“Although it is a cyclical area and we have seen forestry stocks appreciate greatly in the past 12 months due to the recovery in the U.S. housing market demand is greater than supply, which should push areas of the sector higher.”
So how might the average investor who doesn’t like the heavy leverage and risk associated with commodity futures participate in this lumber “super cycle”? The above mentioned iShares S&P Global Timber & Forestry Index Fund (ETF) wouldn’t push you too far out on a limb.
Yahoo! Finance summarizes the fund’s objective:
“The investment seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Global Timber & Forestry IndexTM … The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index. The underlying index is comprised of approximately 24 of the largest publicly-traded companies engaged in the ownership, management or upstream supply chain of forests and timberlands. The fund is non-diversified.”
And the ETF seems to be logging a better return than the index, posting 12.58% vs. the index’s 7.25% in the last 3 months, and 18.78% vs. the index’s 10.69% over the last 12 months.
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Another solid piece of ground to tread on is wood flooring retailer Lumber Liquidators (NYSE:LL). With a market cap of $1.89 billion, LL stands just a branch below the mid-cap treeline.
Yahoo! Finance outlines the company’s services:
“Lumber Liquidators Holdings, Inc. operates as a specialty retailer of hardwood flooring, and hardwood flooring enhancements and accessories. The company provides various wood flooring products, including prefinished domestic and exotic hardwoods, engineered hardwoods, unfinished hardwoods, bamboo, cork, and laminates, as well as resilient flooring products. The company markets its products to homeowners or to contractors under the brand name of Bellawood through its integrated sales channels, such as stores, a call center, and a catalog, as well as through its Website, lumberliquidators.com. As of December 31, 2012, it operated 279 retail stores in the United States; and 9 retail stores in Ontario, Canada. The company was founded in 1994 and is headquartered in Toano, Virginia.”
That is one very well run sales network, as the company’s stock price shows below, growing by over 366% from $15 to $70 since the end of 2011.
“Steady full-year EPS gains stalled in 2010 and barely moved up in 2011, coinciding with the devastated housing market and consumers who suddenly cut back on all things housing-related including, it seems, floors. But the market started to heal last year, and Lumber Liquidators recorded a 79% EPS gain. Look for 28% growth this year, the consensus says.”
So if you’re thinking about seeking shelter in the resurging housing market but don’t have enough for a house itself, perhaps a lumber ETF or wood products company might provide some cool shade for your investment dollars.
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