Despite severe supply chain disruptions, the renovation and remodeling trend to make existing homes more comfortable and practical for living and working has driven a rising demand for lumber over the past year. Because hybrid working arrangements are expected to continue for the foreseeable future, the demand for lumber products is expected to remain steady. Furthermore, investors’ interest in the lumber stocks is evident in the iShares Global Timber & Forestry ETF’s (WOOD) 4.6% returns over the past three months compared to the SPDR S&P 500 Trust ETF’s (SPY) 4.5% loss.
Rising mortgage rates are expected to cool the U.S. housing market, which could lessen demand for lumber and result in lower prices. However, with the economy's continuing recovery, the need for lumber is rising. Moreover, a shortage of new homes for sale and President Biden’s infrastructure bill could boost demand for lumber in the coming months.
So, we think it could be wise to bet on quality lumber stocks West Fraser Timber Co. Ltd. (WFG) and Boise Cascade Company (BCC), which are currently trading near their 52-week highs and have solid upside potential.
West Fraser Timber Co. Ltd. (WFG)
Vancouver-based WFG is a diversified wood products company that sells lumber, panels, pulp, and papers in western Canada and the southern United States. It offers spruce-pine-fir, Douglas Fir-Larch, Hem-Fir tree, and southern yellow pine lumber. The company also exports lumber to Asia, the Caribbean, Europe, the Middle East, and South America.
On Dec. 6, 2021, WFG acquired the oriented strand board mill near Allendale, South Carolina. The mill's additional OSB capacity will give the company flexibility to better meet customer demand, particularly from large, growing end-markets in the southeastern U.S.
WFG’s sales increased 86% year-over-year to $2.36 billion for its fiscal third quarter, ended Sept. 30, 2021. The company’s adjusted EBITDA grew 88% year-over-year to $786 million, while its earnings came in at $460 million, representing a 75.6% year-over-year increase. Also, its EPS came in at $4.20, up 9.9% year-over-year.
For the quarter ending March 31, 2022, analysts expect WFG’s revenue to increase 7.5% year-over-year to $2.53 billion. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 36.6% in price to close yesterday’s trading session at $95.22. It is currently trading 6.5% below its 52-week high of $101.83, which it hit on January 13, 2022.
WFG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has a B grade for Sentiment, Momentum, and Quality.
We have also graded WFG for Growth, Value, and Stability. Click here to access all WFG’s ratings. WFG is ranked #3 out of 6 stocks in the A-rated Industrial - Wood industry.
Boise Cascade Company (BCC)
BCC manufactures wood products and distributes building materials. The Boise, Idaho, company operates in two segments: Wood Products and Building Materials Distribution. The Wood Products segment manufactures laminated veneer lumber and laminated beams used in headers and beams. In contrast, the Building Materials Distribution segment distributes building materials, including oriented strand boards, plywood, and lumber.
On Jan. 4, 2022, BCC announced the expansion of its Building Materials Distribution operations in Minnesota and Northern Kentucky. Jeff Strom, BMD executive vice president of BCC, said, "These recent investments, as well as several others over the past four years, strongly align with our stated strategy of growth in existing markets, underserved markets, and across our entire national footprint."
BCC’s sales increased 18% year-over-year to $1.88 billion for the fiscal third quarter, ended Sept. 30, 2021. The company’s wood products sales grew 37% year-over-year to $497.32 million, while its wood products EBITDA came in at $135.97 million, representing a 70% year-over-year increase. Also, its wood products income was $122.06 million, up 85% year-over-year.
Analysts expect BCC’s revenue to increase 7.7% year-over-year to $1.81 billion for the quarter ending March 31, 2022. It surpassed the consensus EPS estimates in three of the trailing four quarters. The stock rallied 44.6% in price over the past six months to close yesterday’s trading session at $77.20. It is currently trading 7.4% below its 52-week high of $83.37, which it hit on February 2, 2022.
BCC’s POWR Ratings reflect solid prospects. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. It has an A grade for Value and a B grade for Growth, Quality, and Momentum.
Click here to see the additional POWR Ratings for BCC (Stability and Sentiment). It is ranked #1 in the industrial - Wood industry.
WFG shares were trading at $96.84 per share on Tuesday morning, up $1.62 (+1.70%). Year-to-date, WFG has gained 1.55%, versus a -6.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
2 Top-Rated Lumber Stocks Trading Near 52-Week Highs StockNews.com
