3 Stocks to Buy as Lumber Prices Rebound
Due to increasing demand and supply chain issues, lumber prices are expected to continue climbing. Given this backdrop, we think it could be wise to bet on quality lumber-related stocks...
Due to increasing demand and supply chain issues, lumber prices are expected to continue climbing. Given this backdrop, we think it could be wise to bet on quality lumber-related stocks Weyerhaeuser (WY), UFP Industries (UFPI), and Boise Cascade (BCC). Read on.
Lumber prices fell from $1,515 per thousand board feet in May 2021 to $389 per thousand in August 2021. However, a demand-supply imbalance has caused lumber prices to rebound. According to a Bloomberg report, lumber futures on the Chicago Mercantile Exchange surged 4.4% to a six-month high of $1,069.30 per 1,000 board feet on December 10.
According to the Commerce Department data, housing starts increased 11.8% to a seasonally adjusted annual rate of 1.679 million units last month, the highest rate since March. So, the demand for lumber is expected to increase amid a surge in homebuilding. However, a bad wildfire season in the U.S. Pacific Northwest and British Columbia, and Western Canadian flooding, continues to impact lumber supply. So, lumber prices could continue their ascent. According to Richard Fung, a custom home builder with Forever Homes, “Lumber prices are expected to rise in the next year, and if this fluctuation of high prices continues, the price will have tripled by 2025.”
Therefore, we think it could be wise to scoop up the shares of fundamentally sound lumber-related stocks Weyerhaeuser Company (WY), UFP Industries, Inc. (UFPI), and Boise Cascade Company (BCC). They are well-positioned to take advantage of the rising lumber prices.
Weyerhaeuser Company (WY)
WY is a private owner of timberlands that controls approximately 11 million acres of timberlands in the U.S. The Federal Way, Wash.-based company manages timberlands on a sustainable basis in compliance with internationally recognized forestry standards and is one of the largest manufacturers of wood products in North America.
On October 29, 2021, Devin W. Stockfish, the company’s president and CEO, said, "Our teams did an exceptional job navigating these headwinds and I'm extremely proud of their collective focus on operating safely, strong execution and continuing to serve our customers.”
WY’s net sales increased 11.1% year-over-year to $2.35 billion for its fiscal third quarter, ended September 30, 2021. Its net earnings came in at $482 million, up 70.3% year-over-year, while its EPS increased 68.4% year-over-year to $0.64. Furthermore, its adjusted EBITDA came in at $746 million, compared to $745 million in the year-ago period.
Analysts expect WY’s revenue to increase 34.3% year-over-year to $10.12 billion in its fiscal year 2021. Its EPS is estimated to grow 160.5% year-over-year to $3.36 in the current year. Over the past year, the stock has gained 16.9% in price to close yesterday’s trading session at $39.63.
WY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
WY has a B grade for Value, Sentiment, and Quality. Within the REITs - Diversified industry, it is ranked #5 of 49 stocks. Click here to see the additional POWR Ratings for Growth, Momentum, and Stability for WY.
UFP Industries, Inc. (UFPI)
UFPI, through its subsidiaries UFP Industrial, UFP Construction, and UFP Retail Solutions, designs, manufactures and markets wood and wood-alternative products in North America, Europe, Asia, and Australia. The Grand Rapids, Mich., company operates in both residential and commercial construction.
On November 22, UFPI announced that its affiliate, UFP Global Holdings Ltd., acquired 70% of the equity in Ficus Pax Private Limited. Dick McBride, UFPI’s executive vice president of international operations, said, “Ficus Pax is a leader in innovation, with a talented design and engineering team and considerable experience in producing high-value packaging solutions for domestic and multinational customers. We look forward to working together to grow our business with new and existing customers worldwide.”
For its fiscal third quarter, ended September 30, 2021, UFPI’s net sales increased 40.9% year-over-year to $2.09 billion. Its net earnings increased 56.8% year-over-year to $121.04 million. In addition, its EPS came in at $1.93, up 54.4% year-over-year.
UFPI’s revenue is expected to be $8.34 billion in its fiscal 2021, representing a 61.8% year-over-year rise. The company’s EPS is expected to increase 85.1% year-over-year to $7.57 in the current year. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 58.9% in price to close yesterday’s trading session at $87.22.
It is no surprise that UFPI has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, it has a B grade for Value, Momentum, and Sentiment.
Boise Cascade Company (BCC)
BCC in Boise, Idaho manufactures wood products and distributes building materials in the United States and Canada. It operates in two segments: Wood Products and Building Materials Distribution.
On November 1, Nate Jorgensen, the company’s CEO, said, "Looking forward, we are optimistic about the demand environment for new residential construction for the balance of this year and 2022. In addition, we recently announced additional dividends to our shareholders, and our balance sheet strength provides us the ability to remain focused on the execution of our strategies, including future organic and acquisition growth opportunities."
BCC’s sales came in at $1.88 billion for its fiscal third quarter, ended September 30, 2021, up 18.3% year-over-year. Its wood products income increased 84.8% year-over-year to $122.06 million. Also, its total assets came in at $2.59 billion for the period ended September 30, 2021, compared to $1.97 billion for the period ended December 31, 2020.
For its fiscal year 2021, BCC’s revenue and EPS are expected to increase 39.8% and 249.5%, respectively, year-over-year to $7.65 billion and $15.52. In addition, it surpassed the Street’s EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 39.3% in price to close yesterday’s trading session at $66.38.
BCC has an overall B rating, which translates to a Buy in our POWR Ratings. Furthermore, it has an A grade for Value and a B grade for Momentum and Quality.
WY shares were trading at $39.73 per share on Friday morning, up $0.10 (+0.25%). Year-to-date, WY has gained 22.45%, versus a 24.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.