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Investing in Lumber Stocks

Updated: June 24, 2021, 11:42 a.m.

Lumber prices have soared over the past year as a result of pandemic-related supply chain disruptions and a housing boom. The price surge is benefiting investors in the commodity, and, despite some fluctuations, lumber prices remain substantially higher than they were a year ago.

Let's delve into three of the best lumber stocks to buy today.

Company Ticker Description
International Paper (NYSE:IP) Maker of paper products under brands such as Hammermill, Springhill, and Williamsburg.
Boise Cascade (NYSE:BCC) Manufacturer of wood products, primarily for home construction and home improvement.
West Fraser Timber Company (NYSE:WFG) Lumber producer and maker of a variety of wood and paper products.

1. International Paper

Demand for paper may have crumpled up in the digital era, but that hasn't stopped International Paper from delivering solid returns for investors. IP is one of the world’s biggest paper manufacturers, producing everything from printing paper to cardboard packaging, with the latter allowing the company to benefit from the boom in e-commerce. Industrial packaging makes up most of IP's business today, and that focus is likely to further intensify. The company plans to spin off its printing paper business in the third quarter of this year.

Although IP's revenue and profits both declined in 2020 due to supply chain challenges caused by the pandemic, the company is expected to make a strong recovery this year. The company has long paid a dividend to investors and trades at a low price-to-earnings ratio, making this stock a solid choice for both value and income investors.

2. Boise Cascade

Boise Cascade has been one of the best-performing lumber stocks during the pandemic, with its price rising by 30% last year. The company's revenue increased by 18% and its earnings per share doubled in 2020.

The maker of wood products and building materials has benefited from the pandemic-related boom in the housing market, which is attributed to people spending more time at home. Home prices are continuing to rise and demand for single-family homes is strong, both of which benefit Boise Cascade. With more people working remotely, the company is well-positioned to profit from sustained demand for single-family housing.

Boise Cascade also pays a modest but consistent dividend. The company's dividend yield at the time of this writing is 0.7%.

3. West Fraser Timber Company

The West Fraser Timber Company produces much of its wood, which it has licenses to harvest, from publicly owned forests in Canada. Although more than 75% of the company's 2020 revenue came from lumber, West Fraser also makes pulp, paper, and plywood panels.

West Fraser's stock price surged last year by 47% alongside rising lumber prices, and the company delivered blowout results in the first quarter of 2021. As compared with the fourth quarter of 2020, revenue increased by 81% and operating profits more than doubled. Long-term trends in the North American housing market should benefit West Fraser’s lumber business.

Profits for West Fraser can be volatile, as is the case for many commodity producers. But the company also pays an attractive dividend yield, giving investors a reason to stay invested despite the volatility in lumber prices.

Careful with commodities

Investing in commodity stocks such as lumber can be difficult because prices move for unpredictable reasons. These could include natural disasters, geopolitical tensions, and market shocks in other areas similar to what happened to the housing market as a result of the COVID-19 pandemic.

The good news for lumber investors is that lumber is an essential ingredient in homebuilding and home furnishings, and, because of its omnipresence and durability, its status as a key input in those industries is unlikely to change. In fact, structural tailwinds in the U.S. seem to be building for lumber since there’s a significant lag in housing inventory, plus the remote work trend should also favor homebuilding and home improvement.

The best commodity stocks have competitive advantages that allow the businesses to do well even in difficult economic conditions. The businesses above have all stood the test of time and have stakes in growing industries such as e-commerce and homebuilding. For investors looking to gain exposure to lumber, International Paper, Boise Cascade, and West Fraser all look well-positioned today.

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