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.

lumber prices August 2020

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.




 

 

 

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About the Author

Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He authored A Maverick Investor's Guidebook which blends his experience touring across the heartland in the United States with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources which he authored with Pamela Clark — predicted the resources boom back in early 2004.

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