4-Star Stocks Poised to Pop: Plum Creek Timber (PCL)

4-Star Stocks Poised to Pop: Plum Creek Timber

Based on the aggregated intelligence of 170,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, timberland operator Plum Creek Timber (NYSE: PCL ) has earned a respected four-star ranking.

With that in mind, let's take a closer look at Plum Creek's business and see what CAPS investors are saying about the stock right now.

Plum Creek facts

Headquarters (Founded)	Seattle (1989)
Market Cap	$6.9 billion
Industry	Industrial REIT
Trailing-12-Month Revenue	$1.19 billion
Management	CEO Rick Holley (since 1994) CFO David Lambert (since 2006)
Return on Equity (Average, Past 3 Years)	14.4%
Cash/Debt	$252 million / $2.69 billion
Dividend Yield	3.9%
Competitors	International Paper (NYSE: IP ) Potlatch (Nasdaq: PCH ) Weyerhaeuser (NYSE: WY )

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 94% of the 737 members who have rated Plum Creek believe the stock will outperform the S&P 500 going forward. These bulls include TheKooz and All-Star ikkyu2, who is ranked in the top 3% of our community.

A couple of months ago, TheKooz helped Fools see the forest for the trees:

Trees continue to grow adding value as we wait for the housing market to recover. When the housing market gets back to normal, Plum Creek will have a great selection of prime lumber to offer. A decent dividend while we wait.

Plum Creek even boasts a robust three-year average operating margin of 23.2%. That's higher than that of competitors like International Paper (6.7%), Potlatch (15.9%), and Weyerhaeuser (-1%).

CAPS All-Star ikkyu2 elaborates on the bull case:

Jeremy Grantham points out the advantages of forestry, a renewable resource.

Peter Lynch says, try to find a company that any idiot could run, because sooner or later, that idiot will be running it. So how's this for a business model:

1) Get land.
2) Plant tree on land.
3) Chop down tree; sell tree.
4) Repeat.

I like it. I like the long-term time horizon. I like the moat -- could you enter the forestry business as a viable competitor tomorrow? Where's your hectares? Where's your old-growth?

I like everything about it.

What do you think Plum Creek, or any other stock for that matter? If you want to retire rich, you need to put together the best portfolio you can. Owning exceptional stocks is a surefire way to secure your financial future, and on Motley Fool CAPS, thousands of investors are working every day to find them. CAPS is 100% free, so get started!

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool owns shares of and has written puts on Plum Creek. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Report this Comment On April 12, 2011, at 9:17 PM, wcoers wrote:

The problem with PCL is that the equity in the company is being cannibalized by artificially propping up the dividend.
About 3 years ago PCL had about 8 Million acres, today less than 6.8. The debt is increasing per acre and is relatively short term in maturity.
Basically the company is selling less timber at a lower price with the outlook for the housing market and demand for wood lower.
PCL is selling off land at a time when the demand and prices are weak.
Instead of using land sale proceeds and borrowings to prop up the dividend; the company should be making better use of the cash and current market conditions for the long term benefit of the shareholders. Some things PCL should be doing:
Refinancing debt to long term taking advantage of this low interest rate market and insulating against having to refinance at no doubt much higher rates as the current loans come due over the next seven years. Buy back stock, Buy more land at current relatively low prices.
Future upside in this company will be absorbed to a great extent by having to pay principal on the debt, higher interest rates on the loans and having fewer acres to harvest or sale to generate income,
PCL needs to lower the dividend in the short run for shareholder's long term benefit.
Report this Comment On April 13, 2011, at 4:04 AM, Glycomix wrote:

Plum Creek Timber Company's best points are that it has made money for the past four years, it has a good cash flow and it provides an almost 4% dividend.
It's problem is that it is very expensive for what you get. It is mortgaged up to the hilt with a 1.95 debt/equity; they owe others twice as much as the company is worth and most of the cash flow is leveraged,
Plum Creek is a REIT so they might add a stockholders depreciation refund to the dividend. However, However, this low depreciation adds only 4% to current 4% dividend. This is a lot of trouble for a tiny depreciation cheque. What's the point of dealing with depreciation that you must keep track each year to report it to the IRS.
There exist better-run, less indebted stocks that pay better dividends.

updated 2 days ago Sponsored by:
	DOW	12,454.83	-74.92	-0.60%
	S&P 500	1,317.82	-2.86	-0.22%
	NASD	2,837.53	-1.85	-0.07%

PCL	$36.71		-0.31	-0.84%
Plum Creek Timber…		CAPS Rating:

WY	$19.77		-0.14	-0.70%
Weyerhaeuser Compa…		CAPS Rating:

PCH	$28.97		-0.34	-1.16%
Potlatch Corp		CAPS Rating:

IP	$29.31		-0.31	-1.05%
International Pape…		CAPS Rating:

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4-Star Stocks Poised to Pop: Plum Creek Timber

Comments from our Foolish Readers

Report this Comment On April 12, 2011, at 9:17 PM, wcoers wrote:

Report this Comment On April 13, 2011, at 4:04 AM, Glycomix wrote:

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