The Domino effect of the Fed’s aggressive interest rate hikes to control record-high inflation has resulted in a pullback in demand for housing due to rising mortgage rates. The average 30-year fixed mortgage rate inched closer to 7%, a steep climb considering that the average rate was just 3% a year ago.
As a result of borrowing becoming more expensive for individuals, demand for housing and building materials such as lumber is declining. From the highs of $1,477.4 per thousand board feet (mbf) at the beginning of March 2021, when the economies were simultaneously recovering from the Covid-19 pandemic and suffering from supply chain disruptions, the price of lumber has fallen 70.5% to $435.60 per thousand mbf.
Since it might take a while for the housing market to rebound on lower than prevailing mortgage rates, lumber prices are expected to trade in the pre-pandemic range of $200-$600.
In the current scenario, we think it could be wise to add quality lumber stocks UFP Industries, Inc. (UFPI), Boise Cascade Company (BCC), and Canfor Corporation (CFPZF) to your watchlist.
UFP Industries, Inc. (UFPI)
UFPI supplies products manufactured from wood and non-wood composites and other materials across North America, Europe, Asia, and Australia. The company operates through three segments: Retail; Industrial; and Construction.
On June 27, UFPI announced that its affiliate, PalletOne, Inc., has acquired a 50% equity stake in Dempsey Wood Products, LLC. The purchase agreement includes options for PalletOne to purchase the remaining 50% of Dempsey after three years. This acquisition should provide UFPI with an additional wood-sourcing capacity to support growth.
For the second quarter of the fiscal year 2022 ended June 30, 2022, UFPI’s net sales increased 7.4% year-over-year to $2.90 billion. During the same period, the company’s gross profit and adjusted EBITDA increased 19.5% and 21.8% year-over-year to $503.45 million and $318.51 million, respectively.
Furthermore, the company’s net earnings attributable to controlling interest came in at $203.12 million, up 17.2% from the prior-year quarter. This translated to quarterly earnings of $3.23, up 16.2% year-over-year.
Analysts expect UFPI’s revenue and EPS for the third quarter of the fiscal year ended September 2022 to increase 7.7% and 25.4% year-over-year to $2.25 billion and $2.42, respectively. In addition, the company has surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 8% over the past year to close the last trading session at $75.43.
UFPI’s POWR Ratings reflect this stable outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
UFPI has an A grade for Value and grade B for Growth and Sentiment. It is ranked #2 in the A-rated Industrial - Wood industry.
Click here to see additional POWR Ratings for Momentum, Stability, and Quality for UFPI.
Boise Cascade Company (BCC)
BCC is engaged in producing engineered wood products (EWP) in North America and wholesale distribution of building products in the United States. The company operates through two segments: Wood Products and Building Materials Distribution (BMD).
On July 25, BCC completed the previously announced acquisition of Coastal Plywood Company and its manufacturing operations in Havana, Florida, and Chapman, Alabama. BCC's CEO, Nate Jorgensen, said, “We look forward to serving our customers with this expanded capacity.”
For six months of the fiscal year 2022 ended June 30, BCC’s net sales increased year-over-year to $4.60 billion. During the same period, the company’s adjusted EBITDA increased 13.4% year-over-year to $743.36 million, while the net income grew 15.3% year-over-year to $520.71 million. As a result, the BCC reported $13.10 as half-yearly EPS, up 14.9% year-over-year.
Analysts expect BCC’s revenue and EPS for the third quarter of the fiscal year 2022 (ended September 30) to increase 8.5% and 78.8% year-over-year to $2.04 billion and $4.13, respectively. The company has an impressive earnings surprise history as it has topped the consensus EPS estimates in each of the trailing four quarters.
BCC’s stock has gained 3.6% over the past month and 22.6% over the past year to close the last trading session at $63.38.
BCC's POWR Ratings reflect its stable outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. It has a grade of A for Value and B for Quality and Momentum. It tops the list of six stocks in the same industry.
Beyond what we’ve stated above, we have also given BCC grades for Growth, Sentiment, and Stability. Get all the BCC ratings here.
Canfor Corporation (CFPZF)
Headquartered in Vancouver, Canada, CFPZF operates as an integrated forest products company in the United States, Canada, and internationally. The company operates through two segments Lumber and Pulp and Paper.
On July 28, CFPZF announced it would invest approximately $210 million to build a new, state-of-the-art sawmill complex in southern Alabama. The new sawmill is expected to have an annual production capacity of 250 million board feet on a two-shift basis.
“Building on Canfor's proud operating history in Alabama, we are excited to invest in a new world-class facility that will ensure our long-term ability to operate competitively. In addition, the facility's versatility and flexibility will enhance our ability to align our production of high-quality products with market demand more closely," said Don Kayne, CFPZF’s President, and CEO.
During the second quarter of fiscal 2022, CFPZF’s cash inflows from operating activities stood at C$677.40 million ($498.44 million). As of June 30, 2022, the company’s cash and cash equivalents came in at C$1.53 billion ($1.13 billion), up 29.5% year-over-year. Also, its total assets amounted to C$6.96 billion ($5.12 billion) as of June 30, 2022, compared to C$6.17 billion ($4.54 billion) as of December 31, 2021.
The stock has declined 19.4% over the past year to close the last trading session at 14.50%.
CFPZF has an overall rating of B, which equates to Buy in our POWR Rating system. It also has a B grade for Value, Momentum, and Quality. It is ranked #3 in the same industry.
Click here to see the additional POWR Ratings for CFPZF (Growth, Stability, and Sentiment).
UFPI shares were trading at $75.96 per share on Thursday afternoon, up $0.53 (+0.70%). Year-to-date, UFPI has declined -16.73%, versus a -19.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
3 Lumber Stocks to Watch as Prices Hit Pre-Pandemic Lows StockNews.com
