Should You Be Buying Lumber/Wood Stocks Now?

Sejuti Banerjea
·3-min read

The Zacks-classified Building Products – Wood industry has done exceptionally well over the past year, growing 31.6%. That’s nearly double the S&P 500, which grew 18.0%.

What has been driving these stocks to crazy highs? And will this continue, or will there be a pullback later this year? And in either case, is this a good time to buy some shares? Let’s find out.

The main reason these stocks are soaring is sky-high lumber prices. And that has happened because of a number of things happening all at once.

First, 2020 started out with low inventories because there were issues in the Canada supply chain.

And then there were the western wildfires in August and September and the hurricane season in the southeast, all of which served to disrupt production.

And then we had the pandemic, which other than disrupting production also forced people to stay indoors, leading to a boom in repair/remodeling. While there was a shortage in logs and all kinds of treated wood, many people were building decks. Others were looking for a larger home, or deciding to finally settle down, or simply, to make the most of the low mortgage rates. Which of course meant a housing construction boom.

That situation hasn’t changed materially in the new year. So lumber prices remain high and considering the inventory situation, are likely to remain so. While there could be pullbacks at times, the tight inventory situation and strong housing market mean generally that pricing will remain strong.

But obviously, they can’t go endlessly higher. Very high pricing is already putting homes out of reach for some. The new administration’s proposed $15,000 credit for first-time buyers could help in the spring buying season however.

As things stand now, we appear to be looking at relatively strong pricing with volumes stabilizing through the year, which means there still are some gains to be had here.

And you’re also spoilt for choice because there are a large number of Zacks #1 (Strong Buy) and #2 (Buy) ranked stocks that can generate those near-term gains.

These would be #1 ranked Norbord Inc. OSB, which offers wood panels in the U.S., Europe and Canada; Potlatch Corp. PCH, which is a Real Estate Investment Trust (REIT) with timberland in Alabama, Arkansas, Idaho, Minnesota and Mississippi; and Weyerhaeuser Company WY, which is a broad-scale provider of logs, hardwood lumber, timber, poles and plywood, as well as minerals, oil, gas, seeds and seedlings across the world.

Some of the #2 ranked stocks include LouisianaPacific Corp. LPX, which is a leading manufacturer of sustainable, quality engineered wood building materials, structural framing products as well as exterior siding for use in residential, industrial and light commercial construction; Boise Cascade, L.L.C. BCC, which manufactures engineered wood products, plywood, lumber and particleboard and distributes decking, EWP, lumber, panel, particleboard, MDF products, etc in the U.S. and Canada; and Masonite International Corporation DOOR, which designs and manufactures interior and exterior doors.

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Weyerhaeuser Company (WY) : Free Stock Analysis Report
 
LouisianaPacific Corporation (LPX) : Free Stock Analysis Report
 
Potlatch Corporation (PCH) : Free Stock Analysis Report
 
Masonite International Corporation (DOOR) : Free Stock Analysis Report
 
Boise Cascade, L.L.C. (BCC) : Free Stock Analysis Report
 
Norbord Inc. (OSB) : Free Stock Analysis Report
 
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