Interfor Corp (IFP.TO)

Housing cycles tend to be fairly long. In the US there has been a great improvement since the financial crisis, and that continues to happen. In Canada we have a slightly different problem with people talking about an overvaluation of housing. This one is probably not a bad place to be.

This has a double seasonality. It goes up from October to February and possibly as far as April, and goes down from April to October. Currently it is going sideways, and is outside of its seasonal strength, so you don’t want to be in the stock.

Doesn’t own any lumber stocks at this point. The 3 he would look at would be this one, Canfor (CFX-T) and West Fraser Timber (WFT-T). If he were buying, it would be this company, which is the cheapest. It also has the largest exposure to US manufacturing. However, he wouldn’t touch any of them because there is the US lumber dispute that is going to heat up again. It looks like the US does not want to extend the current arrangement.

A medium-sized forest products company. Has operations both in Canada and the US. Over the past couple of years have been buying up US sawmills and other assets. About 67% of their forestry assets are in the US. If there is a higher tariff in October, they will not be impacted as badly. He likes the name.

Resource stocks all have a similar pattern where they dipped down and then came back up to the level they wanted to be at, which they had tested in November. This has a $25 target from a purely technical basis. There will be resistance at around $14.60. From a seasonality point of view, this is not a strong time for forest for pulp or lumber. The stock looks pretty good.

Historically this has very, very strong seasonality. It normally bottoms at around the middle of October, and goes higher until April. We are at the time when you would expect seasonality to normally revert, so now is the time to consider selling the stock and taking some profits any time there is strength.

(Top Pick Apr. 13/15, Down 28.54%) He generally likes the space. It comes down to whether one really believes in a continued US housing recovery. The lumber stocks have underperformed considering a pretty good housing recovery.

He likes the forestry sector because the underlying commodity is one of the nicer looking commodities. It is in an upward price channel. We had a correction in IFP-T and the volume has increased. US housing has had recent good news. He would watch these lows and they HAVE to hold. $8.95, for example.

He made a ton of money and sold it. He has not felt compelled to come back although his radar is up because lumber futures have gone through the roof. He thinks uncertainty over the softwood lumber agreement is holding it back. Wait for clarity there.

Lumber is tied to housing, and the US housing market is lukewarm. You are going to get some demand, but not a lot. Currency is going to help out. Doesn’t see anything in housing that screams that it is a buy. A lukewarm story, but not something that would get him excited.

Had owned several forestry companies on the basis of a US recovery, more housing starts and lumber prices getting a lift. Did further digging and discovered that over 50% of new US household formations are people moving into condos, built out of cement, not lumber. He bailed on his lumber holdings.

Normally forest product stocks do very well from the middle of October right through until April of each year. Recently came back to its low of October. Technically it has come back to support which is a good sign. A bounce from these levels implies that you are going to get a test of the previous high, and if you got a breakout above that level, that would be very, very bullish. There is still some time for the seasonal trade. Probably a good Hold at these levels if not a good Buy for a trade into April.

The best is behind us. Lower highs and lower lows are developing. There should be some value developing soon. He would like to see the lows of last September holding before buying.

Forestry stocks have a period of seasonal strength from October through to February, the run-up to the spring home buying season. This stock had a breakdown on the trend line support, which was also equivalent to its 50 day moving average. With that broken level of support, that is now implied to be resistance on any snap back rally. The next level of support is at about $9. However, the chart is showing lower lows and lower highs, which implies a longer-term trend of pain. Even the 200 day is pointing lower.

Has been following this for a number of years. 2015 is definitely a year that you want to forget for lumber stocks. It was a horrible year. There was so much optimism about US housing that a lot of mills loaded up on lumber, and there was so much supply that it started to weigh down the price. China slowing down made it worse. This is an interesting period for lumber stocks. Companies may not order as much supply going forward into next year, which means that if next year is a good year, supply/demand is going to be extremely tight and you should see lumber prices start to improve. If that doesn’t happen, you are going to see these names struggle. This company doesn’t make money at these levels.