Plum Creek Timber Is Peachy

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When not preceded by "non," "short," or "ultrashort," any instrument containing the words "real estate" may conjure visions of horror in this economic environment. However, the most frightening thing at Plum Creek Timber (NYSE: PCL  ) could be the Halloween costume of President and CEO Rick Holley -- he'll be going as a mountain pine beetle.

OK, that's not true. But this is: The timberland real estate investment trust (REIT) turned in third-quarter earnings per diluted share that beat expectations by a penny, coming in at $0.40. After adjusting the number for Montana wildfire-related costs in 2007, that number tops last year's results for the same period by 11%. Favorable timber market conditions and a temporary bump in prices for Northern saw logs helped offset weak rural land sales and manufacturing revenues.

Markets responded with enthusiasm, and shares jumped 24% higher on Tuesday, which was a sight for investors' sore eyes. Before Monday's after-close conference call, shares of the company traded at $30.75, in the neighborhood of half its 52-week high.

Despite the beating its stock has taken in recent months, Plum Creek's financial position hasn't experienced a parallel decline. For reassurance, shareholders can thank management's abstinence from the commercial paper market and banking relationships with well-fortified banks such as Bank of America (NYSE: BAC  ) , Morgan Stanley (NYSE: MS  ) , and Goldman Sachs (NYSE: GS  ) .

Well-positioned to improve its position in a volatile market, Plum Creek can readily change from seller to buyer and vice versa, depending on varying opportunities and changing circumstances. Additionally, management expects to keep a healthy war chest of cash for repurchasing its stock at attractive prices while maintaining its sizable dividend.

Reflections of a Fool
Unlike the commercial real estate market, Plum Creek's rural land deals are not typically financed by credit. In fact, it completes most of its land sales with cash buyers. Arguably, if overall transaction volume decreases in the near future, the softness will probably be unrelated to credit, but rooted in the macroeconomic environment.

Plum Creek focuses on the long run, and appeals to like-minded investors. Most timberland investors aren't interested in flipping their purchases to make a quick profit, and owners of its stock should view their shares the same way. No stock is likely to make you a fortune overnight, but if left to grow, this one has oak-solid potential.

More Foolishness:

Chris Jones does not own shares of any companies mentioned. Bank of America is a Motley Fool Income Investor pick. The Motley Fool's disclosure policy sees the forest for the trees.

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