Back in early February, I posted an article suggesting Canadian lumber stocks were poised to perform. I mentioned that I’d bought one myself – West Fraser Timber (cost $57.85) – which is now just above $70. A 22% return over 6 months may seem trivial compared to some of the tech stocks, but I’ll take it.
My reasoning at the time was a reduction in duties imposed on exported lumber to the U.S, but the story now has more to do with a shortage of lumber. The lumber companies cut back (originally because of hefty duties) in anticipation of a possible plunge in the housing market due to the pandemic, but it turned out not to be as devastating as expected.
Soaring lumber and wood panel prices are adding thousands of dollars to the cost of building a home in Canada as strong renovation and new housing demand outstrip supply. (source CBC.ca)
If there’s a shortage of lumber in Canada, it is quite likely there’s also a shortage of wood product in the U.S., and since 30% of our product is exported south it bodes well for Canadian lumber producers.
There’s always a risk that Trump will increase duties, but with reduced costs (due to COVID-19) and layoffs it’s unlikely supply can ramp up and cause prices to decline; and very likely housing demand will continue to improve – bolstering profitability and ultimately share prices.
Names to consider include Canfor (CFP) West Faser Timber (WFT), Interfor (IFP), and Stella Jones (SJ). My own preference is WFT but I’ve also played the sector with IFP in the past.