Top 5 Lumber Stocks of 2016 (WY, RYN)
Lumber prices are rising in 2016, due to growth in the U.S. housing construction market. Lumber futures are up roughly 28% since the end of December 2015, as of July 2016. Due to the lumber industry's low profile, investors may have overlooked its growing returns in 2016.
These five lumber stocks are well positioned to continue benefiting from the rise of lumber prices in the second half of 2016.
Weyerhaeuser Co. (NYSE: WY) grows and harvests trees, develops and construct real estate and produces a variety of forest products. It is classified as a real estate investment trust (REIT). The company owns more than 6 million acres of timberland in the United States. It additionally manages 14 million acres in Canada. Weyerhaeuser has a solid three-year average revenue growth of 5.8%, which is higher than the lumber and wood production industry average of 3.1%. Investors had received a YTD return of 11.21% as of Aug. 10, 2016. The stock offers an enticing yield of 3.79%; the company’s dividend increased 100% between 2011 and 2015. Weyerhaeuser has a market capitalization of $24.5 billion.
Rayonier Inc. (NYSE: RYN) is a timberland REIT with operations in the United States and New Zealand. The company produces and sells standing timber and timberland acreage. It owns 2.6 million acres of timberland. Rayonier is placing an emphasis on timber sales to generate a steady cash flow. It is cheap compared to its peers, with a price-earnings (P/E) ratio of 21.8, which is roughly half of the industry average of 39.3. Investors have been rewarded handsomely with a YTD return of 25%, as of Aug. 10, 2016. Rayonier has a market cap of $3.3 billion. As of Aug. 10, 2016, the stock was trading at $27.25, just 1.12% below its 52-week high of $27.56. Rayonier’s 50-day moving average crossed above its 200-day moving average in mid-April 2016; this is referred to as a golden cross and is considered bullish by technical analysts.
Universal Forest Products
Universal Forest Products Inc. (NASDAQ: UFPI) supplies wood and wood composite to retail, construction and industrial markets. These three segments position the company to benefit from more demand for do-it-yourself (DIY) products, a strengthening U.S. housing market and increased commercial construction spending. As of August 2016, Universal Forest Products had a $2.2 billion market cap. The stock is cheap relative to its competitors, with a P/E ratio of 22.4, and uses minimum shareholder equity to finance its assets, with a low debt-to-equity (D/E) ratio of 0.1. Investors have enjoyed an impressive YTD return of 57.45%, as of Aug. 10, 2016.
American Woodmark Corporation (NASDAQ: AMWD) manufactures and sells kitchen cabinets and vanities. It has roughly 500 different cabinet lines; products are made from maple, oak, cherry and hickory lumber. The company’s 2016 fiscal year net sales increased 15% over the previous fiscal year. American Woodmark’s three-year average revenue growth of 14.5% demonstrates its ability to make sales and potential to increase market share. The stock’s return of -5.98% YTD, as of Aug. 10, 2016, presents an opportunity for investors to purchase its shares at a discounted price. American Woodmark has a market cap of $1.2 billion.
Koppers Holdings Inc. (NYSE: KOP) provides treated wood products, wood treatment chemicals and carbon compounds. It primarily services the railroad and utility industries, giving the company exposure to a niche market. Koppers Holdings reported second-quarter earnings per share (EPS) of 93 cents, easily exceeding Wall Street expectations of 62 cents a share. As of August 2016, it had a market cap of $664 million. The stock has appreciated strongly, with a YTD return of 76.22% as of Aug. 10, 2016. It is currently trading at $32.16, toward the top of its 52-week range of $13.58 to $33.70, making it a stock to consider for momentum investors.