Canada’s success is quite synonymous with the lumber industry it has. According to Natural Resources Canada, as of 2017, the lumber industry has already employed around 210,000 people, accounting for Canada’s 7.2% of total exports, which made roughly $24.6 billion in actual economic contributions. Moreover, by 2020, Canadian stocks that revolve around lumber production have become extremely popular due to rising prices.
What's in the Article:
- Best Canadian Lumber Stocks
- Why Invest in Canadian Lumber Stocks?
- A Knock-on-Wood Reality– Final Thoughts
Best Canadian Lumber Stocks
Canada’s areas of prime forestry are located in Ontario and Quebec. However, there are also parts of Western Canada that significantly contribute to the supply of this industry. These Canadian lumber stocks were almost 29% lower on average in 2020. If you want to add lumber stocks in Canada to your expanding portfolio, be exposed to these five (5) solid options.
Canfor Pulp (CFP.TO) | TSX: CFP
- A known Canadian lumber stock
- Provider of a unique presence known worldwide, perfect for Canadian investors who want to expand the company’s operations in both North America and Asia
- Operates in two (2) segments: (1) lumber and (2) pulp and paper
- It has over twenty-four (24) sawmills and four (4) paper mills located in North America, a heavy presence in the region’s lumber industry
- Expected growth rates of -40% don’t precisely provide a positive perspective to potential investors
- On a positive note, it is trading highly cheap to only 8.17 times its earnings, 0.37 price-to-sales, and a 0.93 price-to-book due to estimates and the overall negativity towards the demand for lumber in the Canadian housing market
- Has lost more than half of its value in the past ten (10) months – an opportunity experienced value investors can utilize towards the stock’s positive potential
West Fraser Timber (WFT.TO) | TSX: WFT
- Probably one of the most popular lumber stocks in Canada
- It is involved in the production of lumber, panels, pulp, newsprint, wood chips, and energy
- Primarily, it has operations in Western Canada and the southern United States.
- They recently purchased a significant portion of shares that amount to a whopping $675 million.
- It has a one (1) year C$60.87 target price, indicating a downside of almost 14%
- From a mere predicted 4.80% growth for 2019, the company has already given investors more than 65% returns, not including its dividends for the past two and a half years.
- When in search of a cheap one, West Fraser fits this mould, somewhat undervalued at 12.66 forward trading price to earnings, 0.78 price-to-sales, and 1.66 price-to-book of 1.66
Interfor Corp (IFP.TO) | TSX: IFP
- One of Canada’s top lumber companies
- A Canadian lumber stock full of rich history
- Began its TSX trading in 1980, and since then, it has established itself as a provider of a worldwide wide range of products
- Manufactures wood products in British Columbia and the United States, eventually selling them globally
- It has more than 18 mills across Canada, having over 3 billion board feet annual capacity.
- Strategically purchases new mills while upgrading old ones, improving their production capacity.
- Has one (1) year estimated $21.00 price target, an upside indicator of their 30% price today
- In terms of earnings, it had disappointments for four (4) consecutive quarters but has grown at a 25.84% annual rate over the past five (5) years, with analysts predicting a 16% growth from 2019 onwards.
- Trading at reasonable valuations: a 13.04 forward P/E ratio, a 1.12 price to book, and a 0.49 price to sales – not bad for a fee to take a position within stocks today
Stella Jones (SJ.TO) | TSX: SJ
- A famous Canadian lumber stock
- Specializations focused on making pressure-treated wood products
- Has operations in five (5) provinces and eighteen (18) states
- The only lumber stock that is also a Canadian Dividend Aristocrat
- Provider of products to different companies involved in highly regulated industries.
- Most of their sales come from utility poles for power companies and railroad ties for railroad companies.
- Their products are frequently used in developing new infrastructures together with necessary routine maintenance.
- Their supplies benefit these industries regardless of economic conditions, maintenance, and urgent completion of power lines and railroad tracks.
- Somewhat reliant on these industries, it receives almost 50% of its sales from its top ten customers, with more than 25% from its top two customers
- It doesn’t have the most customer base diversity – with a loss of one client resulting in bad things for their revenue stream.
- Currently has over 23% upsides from analyst estimates, the consensus being a must-buy Canadian lumber company today.
- Although it hasn’t had the best track record over the last year in earnings reports, having an estimated 19% annual growth rate for the next five (5) years, big expectations from the company starting 2019 to date will not disappoint.
Pinnacle Renewables (PL.TO) | TSX: PL
- Considered the ‘Best Canadian Lumber Stocks’
- Provides unique opportunities for potential investors to deal with the Canadian lumber industry without even having investments that directly deal with companies involved in the lumber production
- Known manufacturer of wood pellets and strategically utilizes partners in the industry to harvest wood on their behalf from forestry areas.
- Very young and has only started in TSX trading a few years ago
- Growing in terms of backlog, with over 80% – consistent in the past years, having an evident demand for their wood pellets
- It is challenging to invest due to its ability to maintain a market-leading presence and also keep high demand, being only a relatively young industry
- The need for their wood pellets was expected to double over this year 2021, increasing as the year’s progress
- Predicted to have some heavy growth starting 2019, it stands right now has almost 60% upside for the wood pellet producer – with growth rate expectancy from 2019 to be of excess from a whopping 500%
- Unfortunately, they missed their Q3 earnings projections by a considerable margin – nearly 80% on EPS estimates
- Although the future may be prosperous ahead, be prepared for potential ups and downs for this company, not getting too short-sighted, because it promises a tremendous potential in terms of profit when we talk about long-run projections
Conifex Timber Inc. (CFF.TO)
Conifex Timber Inc., trading under the symbol CFF.TO is a notable player in the Canadian forestry sector, primarily focused on producing structural grade SPF (spruce-pine-fir) lumber. This specialization positions Conifex uniquely in the market, catering to a specific segment of the lumber industry. The company’s operations are integral to the supply chain of construction materials, a sector that often sees steady demand, especially in growing economies. The Canadian forestry sector offers an exciting investment opportunity if timber prices continue to rise and maintain their current levels.
Investing in Conifex could be appealing due to its focused business model and potential resilience in fluctuating lumber prices. However, investors should consider the cyclical nature of the lumber market and potential regulatory and environmental challenges. The company’s financial health, market position, and response to industry trends are key factors to assess when considering Conifex as an investment opportunity.
Acadian Timber Corp. (ADN.TO)
Acadian Timber Corp., listed as ADN.TO stands out as a leading supplier of primary forest products in Eastern Canada and the Northeastern U.S. The company’s broad geographic reach and diverse product range offer a stable investment opportunity within the forestry sector. Acadian’s role in supplying essential materials to various industries, including construction and paper manufacturing, underlines its importance in the supply chain. The company’s strategic positioning in Canada and the U.S. allows it to tap into multiple markets, potentially buffering against regional economic fluctuations.
Investors interested in Acadian Timber should evaluate its track record in sustainable forestry practices, a growing concern among environmentally conscious investors. Additionally, its financial performance, dividend history, and adaptability to market changes are crucial for those looking to invest in a solid player in the North American timber industry. However, if one thing has caused the softening of Canada’s housing markets and publicly traded funeral homes, wood stocks have become pretty cheap.
Why Invest in Canadian Lumber Stocks?
Investing in Canadian lumber companies offers exposure to a sector essential to the domestic and global economy, particularly in construction and paper products. Canada’s vast forest resources, stable political environment, and advanced forestry practices make it an attractive market for lumber investments. These companies often have a long operation history, providing a sense of stability and potential for steady returns. However, like any investment, it’s crucial to understand the various factors influencing the industry.
Market Trends and Analysis
- Supply and Demand Dynamics: The lumber market is heavily influenced by the construction industry, particularly in the United States, the largest Canadian lumber market. Housing market trends, construction rates, and renovation activities directly impact lumber demand.
- Pricing Trends: Lumber prices can be volatile, influenced by natural disasters, trade policies, and economic cycles. Recent years have seen significant fluctuations in lumber prices, impacting the profitability of lumber companies.
- Global Economic Conditions: The global economy plays a crucial role in the lumber industry. Economic downturns can reduce demand for lumber, while economic booms can lead to increased demand and higher prices.
Environmental and Regulatory Factors
- Sustainability Practices: With an increasing focus on sustainability, Canadian lumber companies are often at the forefront of sustainable forestry practices. This includes responsible harvesting and adherence to environmental standards.
- Regulatory Changes: Environmental regulations can impact operational costs and practices. Companies that proactively adapt to these changes can mitigate risks and maintain a competitive edge.
Global Trade Dynamics
- Trade Agreements and Tariffs: The relationship between Canada and the U.S. is vital, as the U.S. is a major importer of Canadian lumber. Tariffs and trade agreements, such as the Softwood Lumber Agreement, significantly impact the industry.
- Impact of Tariffs: Tariffs can make Canadian lumber more expensive in the U.S., affecting demand. However, they can also encourage Canadian companies to explore other international markets or focus on domestic sales.
- Innovations in Forestry and Wood Processing: Technological advancements are revolutionizing the industry, from harvesting methods to processing techniques. This includes automation, improved sawmill technologies, and advanced logistics systems.
- Efficiency and Sustainability: Technology is also playing a role in enhancing sustainable practices, reducing waste, and improving the industry’s overall environmental footprint.
- Product Line Diversification: To mitigate risks associated with the lumber industry, companies are diversifying their product lines. This includes expanding into engineered wood products, specialty papers, and renewable energy sources.
- Market Diversification: Exploring new markets beyond traditional ones helps in risk mitigation. This could involve expanding into emerging markets or increasing the focus on domestic consumption.
Investing in Canadian lumber companies can be a strategic move, given the industry’s significance and Canada’s role as a major lumber producer. However, investors must consider the various factors impacting the industry, including market trends, environmental and regulatory factors, global trade dynamics, technological advancements, and diversification strategies.
A Knock-on-Wood Reality– Final Thoughts
Canada’s renewable energy industry is still in its infant stages, even for the last few years, as lumber industries like these start gaining momentum and notice; who knows what more can be discovered and innovated in technological advancements and new products, making older products obsolete. This scenario will require companies to always be on their feet, possessing constant visions of making advancements and creating products that will be the go-to resource. While ETFs and other funds can crash if the entire industry goes under, research and finding a few stocks that could emerge unscathed from a recession can bring significant returns.
In general, these lumber companies have the potential to become highly dependent on commodity prices. They are prone to cyclical volatility – but they will show the most significant promise in terms of profitability and the eventual growth of your portfolio as companies like nursing home stocks need them.