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Do Your Investments Have Wood?

June 11, 2012 12:13 PM EDT Send to a Friend
Let's face it. Investing in stocks that have exposure to the timber industry is not sexy. It's not like investing in, say, Apple with all its new-fangled technology. This is wood we're talking about here, folks, and frankly the industry hasn't changed much since the invention of the chain saw.

Boring or not, investors who are willing to pull themselves away from their iPhones and twitter accounts for long enough to, heaven forbid, miss the latest technology conference update might find that good old fashion wood and the very unfashionable wood ETF (NYSE: CUT) is worth examining.

Did you know that framing composite lumber prices are up 26 percent YTD? And how about that oriented strand board, with prices gaining 30 percent YTD! Since last time companies in this space reporting earnings, lumber and OSB are up 8 and 14 percent respectively! Heart pumping yet?

Analysts at Goldman Sachs believe favorable wood products pricing is "sustainable" given season demand from housing activity, and unfilled order to inventory ratios are above the five-year average.

Goldman's second quarter EPS estimates are 25 percent and 14 percent higher than consensus for U.S companies Weyerhaeuser Co. (NYSE: WY) and Louisiana-Pacific Corp. (NYSE: LPX). Weyerhaeuser was added Goldman's Conviction Buy List Monday and they see 22 percent upside.

"We see favorable momentum in wood products prices continuing," stated analysts at Goldman Sachs, led by Alex Ovshey. "“We forecast wood products prices to remain firm through 3Q reflecting seasonally strengthening demand and a very lean inventory channel."

Weyerhaeuser Co is the second largest holding in the Gugenheimer Timber ETF (NYSE: CUT) and has a weighting of 5 percent. Its top geographic weightings are 35 percent US, 15 percent Japan, and 13 percent Brazil.




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