The cost to construct a new home in the majority of markets in the United States and elsewhere has skyrocketed over the past year. Rising lumber prices have spiked home building costs upwards of 50%. This spike is particularly painful for first-time homebuyers who have watched the prices of already-built homes soar throughout the pandemic.
If you are attempting to buy a home and lost out on one dream house after another in bidding wars, the pain won’t sting nearly as much if you invest in the right lumber stocks. Furthermore, investors, in general, should consider scooping up shares of stocks that will benefit from the rise in lumber costs.
Weyerhaeuser Company (WY), Canfor Corporation (CFPZF), and West Fraser Timber (WFG) are three of the top lumber-related stocks. Below, we provide a look at each to help investors determine whether one, two, or all three are worth investing in during the housing crunch.
WY
As one of the country's top forest product businesses, WY serves a wide array of clients here in the states and also in Europe, Japan, and Canada. WY's business is centered on growing and harvesting trees for home construction.
WY is priced less than a dollar below its 52-week high yet it has a modest forward P/E ratio of 18.02. WY has the potential to blast through this ceiling, largely because the housing market has unstoppable momentum. The demand for newly-built houses is soaring in unison with the demand for already-standing houses. Plenty of those who own ranches, bungalows, and cape codes are looking to upgrade to more spacious homes. Add in the fact that Americans' credit scores are better than ever and a growing number of people have the confidence to finance home construction. WY is clearly benefiting from these trends.
WY has a B POWR Rating grade indicating the stock is a Buy. WY has a B grade in the Growth component of the POWR Ratings along with C grades in the Value, Stability, and Sentiment components. Click here to learn how WY fares in the Quality and Momentum components. Of the 53 REITs - Diversified, WY is ranked fifth. You can learn more about the REITs in this space by clicking here.
The top analysts are high on WY, setting an average target price of $36.22 for the stock. If WY reaches this level, it will have increased by more than 7%. The highest target price for the stock is $40. Of the 10 analysts who have issued recommendations for the stock, three consider it a Strong Buy, four consider it a Buy, and three consider it a Hold.
CFPZF
Based in beautiful Vancouver, British Columbia, CFPZF is a forest products business. The company was founded way back in 1938 and employs more than 7,000 people. This worldwide leader in producing wood-building solutions is held in high regard, largely because of its focus on sustainability. CFPZF is spearheading the push for green home building.
CFPZF has spiked from $10 to $20 in a mere six months. Rewind to one year ago and the stock was priced at a lowly $5. The company recorded a record high operating income of more than $720 million in '20. Unless the tiny home wave becomes normative across the land or people decide apartment living is more financially appealing than homes with skyrocketing prices, CFPZF should continue to climb higher.
CFPZF has an A POWR Ratings grade meaning it is a Strong Buy. The stock has A grades in the Quality and Growth components of the POWR Ratings along with B grades in the Momentum and Value components. Click here to learn more about how CFPZF fares in the Sentiment and Stability components.
Of the half dozen Industrial -Wood stocks, CFPZF is ranked first. You can find out more about the stocks in the Industrial-Wood segment by clicking here.
WFG
This diversified wood products business produces lumber, plywood, wood chips, energy, residuals, and more throughout the southern portion of the United States and western Canada. WFG is priced within $7 of its 52-week high yet its forward P/E ratio is a mere 6.95. In other words, WFG is likely undervalued even though it is approaching its 52-week high.
WFG has an A overall POWR Ratings grade meaning it qualifies as a Strong Buy. The stock has A grades in the Quality and Growth components along with B grades in the Sentiment and Stability components. Click here to learn more about how WFG fares in the Momentum and Value components. Of the six stocks in the Industrial - Wood category, WFG is ranked second. You can learn more about the stocks in this space by clicking here.
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WY shares were unchanged in premarket trading Thursday. Year-to-date, WY has gained 6.71%, versus a 6.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.
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