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 that made roughly $24.6 billion in the actual worth of economic contributions. Moreover, due to prices rising, by 2020, Canadian stocks that revolve around lumber production have become extremely popular.
Best Canadian Lumber Stocks
Canada’s areas of prime forestry are located in Ontario and Quebec. However, there are also parts in Western Canada that significantly contribute to the supply of this industry. Overall, 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 on the company’s operations in both North America and Asia
- Operates in two (2) segments: (1) lumber and (2) pulp and paper
- 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 has operations in Western Canada and the southern United States.
- They recently purchased back 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 returns of more than 65%, 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 their TSX trading in 1980, since then establishing 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
- 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 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.
- The bulk of their sales come from utility poles for power companies and railroad ties for railroad companies, among others.
- 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, receiving almost 50% of their sales from its top ten customers, with more than 25% from its top two customers
- It doesn’t exactly have the most customer base diversity – with a loss of one client resulting in bad things for their stream of revenue.
- 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 to potential investors in getting 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 do wood harvesting on their behalf from forestry areas.
- Very young and has only started in TSX trading over 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
- Challenging to invest due to its ability in maintaining a market-leading presence and also keep high demands 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
A Knock-on-Wood Reality– Final Thoughts
Canada’s renewable energy industry is still in its infant stages, even for the last few years. And as lumber industries like these start getting momentum and notice, who knows what more can be discovered and innovated in terms of technological advancements and new products, making older products obsolete. This scenario will require companies to always be on their feet, possessing constant visions in making advancements and creating products that will be the go-to resource.
In general, these lumber companies have the potential of becoming highly dependent on commodity prices, and as such, are prone to cyclical volatility – but will show the most significant promise in terms of profitability and the eventual growth of your portfolio.
Canadian Lumber Stocks
Canadian softwood stocks following the imposition of new tariffs at the US Department of Commerce on the price of softwood lumber. Analysts pointed to the uncertainty surrounding a possible new trade agreement between the United States and Canada and the eventual repayment that Canadian producers will expect if a new deal is struck. Vancouver – Vancouver analysts expressed surprise but thought the companies under investigation would have been exempt from retroactive tariffs, the only way to reach a “fair and reasonable” trade deal between Canada’s two largest timber companies. Canadian softwood lumber imports and told CNN that the tariffs are likely to take effect in the second half of this year after complaining that they unfairly subsidize them.
The result of this scenario could very reasonably be similar stock prices, which we expect to see in 2018 when timber prices reach the $600 mark.
It will be fascinating to see how long markets can maintain this price level, and the longer it lasts, the higher the shares are likely to rise. It is challenging to secure timber and logs, so the mills will take a while to catch up if demand remains at current levels. There is no doubt that the need for timber is growing faster than the industry can keep up due to forest fires, insect infestations and other problems.
It is said that the demand for North American timber will be many times greater given the scale of the current devastation. There is no doubt that timber demand is growing faster than the industry due to forest fires, insect infestations, and other problems.
If you want just one way to diversify, wood is a steady investment, focused on growth, with stable dividends and regular returns. It is also essential to examine the current state of the timber industry in Canada and on the world market to see if the stock is viable at the time of reading.
Canadian companies trading on US exchanges can access American Depository Receipts (ADRs), which are available to many large companies to invest in them. This page provides information on what is achieved by investing in TSX-listed companies and An ETF database that tracks Timber ETFs. Canadian companies and TimberETFs are listed on the US exchange, such as the Timber Index ETF (TIM) and the Canadian Timber Fund.
To learn more about other suppliers, visit the Canadian Timber Supplier Database, where you can find timber and timber suppliers based on your criteria. For more information on potential investments in Canadian timber producers, please see the list of the ten largest Canadian timber companies that traded on the Toronto Stock Exchange on June 30, 2016.
The Canadian forestry sector offers an exciting investment opportunity if timber prices continue to rise and maintain their current levels. According to Morningstar equity research, valuations are modest, balance sheets are strong, and the company is benefiting from growth in demand, driven by a strong US timber market and reasonable timber prices. In addition, despite trading problems, all three companies are backed by growing U S. sawmills. As a result, investors in these companies will continue to enjoy a high market share, even as growth in the interior sawmills industry in the United States and the Canadian timber industry will decline.
The Canadian housing market has been struggling, and timber companies face the same difficulties. There is a significant timber shortage at the moment, including in the USA, where it is treated as pressure wood – treated wood. However, if one thing has caused the softening of Canada’s housing markets, wood stocks have become pretty cheap.
This is due to rising timber prices in Canadian growing regions such as Alberta, British Columbia and Quebec. However, we predict that the price of wood in the US, the world’s second-largest producer, will fall next year, partly due to a shortage of timber in North America.
Canadian timber stocks could be decoupled from previous stock market highs seen in similar market conditions in 2018 if price dynamics drive an upward trend in the future. 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.
Investors looking to make profits in an overlooked or unloved sector should look for companies in the timber industry, especially those with a strong track record of growth and earnings. I would not be surprised by my number one stock because although it is not a direct game of wood, I believe it is an excellent stock to grow upwards – and upwards – and rely on forestry to increase revenue. So far, there are only a handful of Wood shares on the TSX Venture Exchange, but we could see a severe increase in profits as the housing market warms.
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