West Fraser Timber (WFG.TO)

He is not rushing back to the sector because lumber is still going down. There will be a time because the US housing market still remains okay.

This had an extremely good run until the last few months when lumber prices have been off. It is down quite a bit from its peak. This is the largest and lowest cost lumber producer in North America. It is also in pulp and paper and that is where the potential upside is. He likes the long-term outlook for US housing starts, but you have to be patient on it.

Something to keep in mind with respect to these timber companies is that timber cycles tend to be long ones, and housing recoveries, like we are seeing in the US, tend to go on for a number of years. There has always been a dispute on importing Canadian lumber into the US, so our price advantage is not all that great when you look at just the foreign exchange component. If you are looking out a few years, this is not a bad one to look at.

Housing starts in the US have turned and are stronger, but sales to China have turned down. Forward estimates on lumber prices are based on too high of a commodity price.

The 2 big catalysts for lumber stocks was the US and China. Feels lumber prices are ahead of where they should be. The US is starting to pick up a little. This would not be his timing to get into it now. China has lots of growth problems which doesn’t help. Canadian housing is seeing a slowdown in Alberta and Saskatchewan.

Was positive on the lumber sector about a year ago, and then various things happened. The Russian ruble went into the tank, so timber became much more competitive. Also, slowdowns in China. On the US side, we are coming to a point where the housing sector is really going to run, so thinks the forest product stocks in general in Canada are probably worth looking at. Timing is probably good for the stocks.

This company has a big market in Asia and the Asia market rolled over. A very difficult business to be in. Over the last 2 years, they were expensive. They are now coming back into that territory. You really want to buy them when they are almost bankrupt, and then you are kind of rolling the dice that they make it through. This is an extremely high quality company. He hasn’t figured out the dollar figure for an entry point yet. This would be his favourite name in this sector.

This is a tricky area. He is not in the forest products side at all, but watching it closely. The real problem is that the demand for various parts of their business, both lumber and logs, tends to fluctuate. For a while Asians were big buyers of logs, but that has fallen off because the Russians are cutting prices. Also, US housing starts have been on-again off-again. He is reasonably convinced that the US housing starts are going to start to show the kind of growth that he expected a few years ago.

Largest producer of lumber in BC. They are going to benefit from a low Cdn$. The company is also investing quite a bit in operations over the next few years, to modernize their sawmills. That is supposed to be driving 20%-30% EBITDA growth over the next few years.

Move from Energy to Timber? You are moving from one cyclical to another but the factors are different. It is related to US housing and some Chinese buying. WFT-T is his favourite. He is looking to reenter it.

The reason to own this is if you believe the US housing market is normalizing and will show more growth, the Canadian housing market continues to show good growth along with demand from Asia. He sees potential for these companies to show more growth. The Cdn$ is dropping, which makes the price of lumber more attractive. There is potential for rising dividends. A good place to be.

He likes the lumber industry overall, but prefers Western Forest Products (WEF-T) or Interfor Corp (IFP-T). This is one of the largest Canadian lumber producers with operations in BC, Alberta as well as the US south. Conservatively run business and a strong balance sheet. There is perhaps more upside and more chance of an M&A activity in some of the smaller capitalization lumber companies,. This also has some pulp exposure.

Really likes the company. He doesn’t do a lot of resource stocks, but this is a solid company, one of the best in the sector. It is safer than others in the sector. The sector is going to be okay. It is cheap enough that you can still make money after the bounce. As a sector play you don’t get much better than this one.

Thinks the whole sector is surprisingly positive, but he doesn’t know why. When he looks at lumber over the long term, it is one of the few commodities that is basing. There is no sign of a top with WFT-T. He thinks it will go surprisingly higher.

The largest lumber stock and so the safest. The most advanced mills, so will help with operating costs. Diversified geographically in North America. Stand to generate significant cash flow when lumber prices go up, but could go sideways for a while.