5 main stocks in the wood industry to watch in the context of a strong real estate trend

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The Zack Construction products – Wood the industry is expected to benefit from strong demand in response to the acceleration of repair and renovation (R&R) activities. In addition, the US housing market is on the rise, given the desire of a large majority of the population to own a home amid the COVID-19 situation, thereby improving the outlook for the lumber industry. Apart from that, higher lumber prices and inorganic, cautious cost containment measures are strong tailwinds.

Weyerhaeuser Company (WYOMING), PotlatchDeltic Corporation (PCH), International Masonite Society (GATE), UFP Industries (UFPI) and Louisiana-Pacific Society (LPX) are expected to benefit from growing demand resulting from strong housing / R & R activities.

Industry Description

The Zacks – Wood construction products industry includes forest products companies and manufacturers of lumber as well as other wood products used in home construction, repair and renovation, as well as in development. of exterior structures. Companies in the industry also design, manufacture, source and sell flooring products. The industry also includes Real Estate Investment Trusts or Timberland REITs.

4 trends shaping the future of construction products – wood industry

Resilient housing market: The outlook for the industry is strongly correlated with conditions in the US real estate market. Markets have recently shown resilience on key data points, given low mortgage rates despite lingering economic uncertainties and high unemployment resulting from the pandemic. Demand for housing and wood products has also increased, given work-from-home or stay-at-home orders in the COVID-19 pandemic. The remarkable recovery in construction and repair / renovation of single-family homes has resulted in higher lumber prices. This should benefit all activities of players in the wood industry, including lumber, oriented strand board (OSB) and lumber.

Solid Repair and Remodeling Market: The industry should benefit from the acceleration of repair and renovation activities. Despite the uncertainties associated with the pandemic, the R&R market (considered one of the most important in terms of demand for timber) is doing well. Amidst “work from home” or “stay at home” orders, consumers are prioritizing home improvement projects that drive demand. In addition, companies have experienced higher export demand for yellow pine logs from the South to China, as tariff exemptions of 25% were granted. In addition, the increase in public spending on infrastructure projects bodes well.

Acquisitions, product innovation and effective cost reduction strategies: Companies also rely on acquisitions and disposals to develop and improve the quality of their portfolios. New products continue to be an important driver for industry players. Additionally, efforts to introduce products have likely helped gamers. Again, in an effort to reduce costs, companies have reduced the cost structure of their facilities through Lean Six Sigma efforts, selling or shutting down underperforming manufacturing units and facilities, as well as investments in technology. In addition, industry players have focused on operational excellence, including merchandising for value, harvesting and transportation efficiency, as well as harvesting flexibility to seize seasonal and short-term opportunities. term.

Rapid swings in the lumber market: Historically, the volatility of lumber prices has been a major concern for the lumber industry. Any unusual increase in the cost of wood products sold by primary producers increases the cost of inventory and limits margins on fixed-price wood products. However, lower costs eat away at profits, as the products sold are indexed to the current lumber market. Meanwhile, the logging company is governed by federal rules and state forestry commissions, which are subject to frequent change, thus affecting the companies. In addition, due to the very nature of their properties, forest REITs are required to follow environmentally friendly mandates in their businesses.

Zacks industry rankings show bright prospects

The timber industry Zacks Building Products is a group of 12 stocks within the larger Construction sector. Zacks Timber Industry currently holds a rank 32 in Zacks Industry, which places it in the top 13% of over 250 Zacks Industries.

the group Zacks Industry Rank, which is essentially the Zacks ranking average of all member stocks, indicates good prospects in the near term. Our research shows that the top 50% of industries ranked by Zacks outperform the bottom 50% by a factor of more than 2 to 1.

Before presenting a few stocks that you might want to consider for your portfolio, let’s take a look at the recent stock market performance and industry valuation.

Industry Outperforms Sector and S&P 500

The Zacks Building Products – Wood industry has outperformed the broader Zacks construction industry and the Zacks S&P 500 composite over the past year.

During this period, the industry gained 33.9% against the 20.7% growth of the S&P 500 and the rally of 25.3% of the sector at large.

One-year price performance

Current industry assessment

Based on the 12-month futures price / earnings ratio, which is a multiple commonly used to value lumber stocks, the industry is trading at 25.8X versus 23.2X for the S&P 500 and 17.6X for the sector.

Over the past five years, the industry has traded as low as 41.1X, as low as 16.7X, and at a median of 24.2X, as shown in the chart below.

Industry P / E Ratio (12-month futures) vs. S&P 500

5 wood stocks to watch closely

Weyerhaeuser Company: Based in Seattle, WA, this company is one of the largest private owners of forest land in the world. The focus on operational excellence is expected to drive growth. Once again, the recovery in the US housing and R&R market is raising hopes. This Zacks Rank # 1 (Strong Buy) stock has gained 10% over the past year. Zacks’ consensus estimate for 2021 earnings has seen an upward revision of 6.4% in the past 30 days, illustrating optimism about the company’s outlook.

Price and consensus: WY

PotlatchDeltic Corporation: This is an American diversified forest products company based in Spokane, WA. It currently sports a Zacks Rank # 1 and benefits from the strong performance of the Timberlands and Wood Products segments. The company noted that strong housing fundamentals and R&R activity point to a strong outlook for lumber prices, given continued growth in demand for lumber. That aside, strong liquidity should be a major tailwind. The stock has gained 21.2% in the past year. The consensus earnings estimate for 2021 has seen an upward revision of 13.8% in the past 30 days.

Price and consensus: PCH

International Masonite Society: This Tampa, Florida-based company manufactures and distributes interior and exterior doors. This company Zacks Rank # 2 (Purchase) is expected to generate higher EBITDA due to the pricing strategy adopted in the North American residential and architectural segments. In addition, the benefits of previous restructuring actions and COVID-19 cost reduction measures implemented at the end of the first quarter of 2020 will serve as further positive elements. Importantly, Masonite has seen a 1.9% upward revision to 2021 profit estimates over the past 30 days. The stock has gained 38.7% in the past year, outperforming the industry rally of 33.8%. You can see The full list of today’s Zacks # 1 Rank stocks here.

Price and consensus: DOOR

UFP Industries: Based in Grand Rapids, MI, UFP Industries supplies lumber, composite lumber and other products to the retail, industrial and construction markets. The increase in home improvement activity resulting from home orders benefits its Retail segment. In addition, the expansion of the product portfolio through acquisitions and product innovations is remarkable. The stock has gained 22.7% in the past year. The consensus estimate of profits for this company Zacks Rank # 2 in 2021 has seen an upward revision of 14.2% in the past seven days.
Price and consensus: UFPI

Louisiana-Pacific Society: Based in Nashville, TN, this company manufactures construction products primarily for the new home construction, R&R and exterior structures markets. Strong revenues from SmartSide strands, increasing OSB prices and favorable wood fiber and resin costs will boost Louisiana-Pacific’s results. Operational efficiency and cost control efforts are also encouraging. This company’s Zacks Rank # 2 consensus estimate for 2021 earnings has seen an upward revision of 7.2% in the past 30 days. The stock has gained 28.8% in the past year.

Price and consensus: LPX

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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