Wednesday's IBD 50 Stocks To Watch pick, West Fraser Timber, is rapidly moving up the right side of a new base, despite a stock market correction, as part of an industry rally.
Stocks To Watch: West Fraser Timber
Vancouver, Canada-based West Fraser Timber makes lumber and wood products and operates 60 facilities in Canada, the U.S., U.K. and Western Europe. Its products are used mainly for residential home construction, remodeling and repair.
The coronavirus pandemic's hit to lumber manufacturers and the boom in homebuilding and home renovation combined to catapult lumber prices to record highs. While lumber prices are down more than 20% year to date in 2022, trading around $900 per thousand board feet, they remain far above their 52-week low of $448. Lumber prices traded as high as $1,733 on May 10, 2021.
Last Thursday, West Fraser reported strong quarterly earnings and sales results, topping analyst estimates. The company earned $10.25 per share on revenue of $3.1 billion, which marked year-over-year increases of 47% and 33%, respectively.
"While our ability to supply markets was constrained, demand for our wood-based building products remained robust in the first quarter," Chief Financial Officer Chris Virostek said in the West Fraser earnings call. Meanwhile, Chief Executive Ray Ferris said the company was monitoring the impact of rising interest rates on the demand for new home construction, which would impact the company's wood-building products.
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West Fraser's IBD Stock Ratings
West Fraser shows a weak 43 out of 99 Earnings Per Share Rating and a best-possible SMR grade of A, according to IBD Stock Checkup. The EPS Rating took a hit from earnings declines in the previous two quarters. The SMR Rating analyzes a company's sales, margins and return on equity, and offers a letter grade from A (the best) to E (the worst). Here, sales growth of 33% to 310% the past four quarters provides a boost.
Meanwhile, WFG stock shows an 84 out of 99 IBD Composite Rating. The Composite Rating helps investors easily measure the quality of a stock's fundamental and technical metrics.
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WFG Stock Shows Buy Point
West Fraser Timber is moving up the right side of a new cup base that shows a 102.71 buy point, according to IBD MarketSmith chart analysis. Be on the lookout for a potential handle to offer a lower entry. The stock has moved back above the 10-week moving average.
A key technical indicator to watch is the stock's relative strength line. After plunging in March — due to the stock's 30% decline — the RS line is on the ascent after bottoming on April 7. The RS line is nearing a new high, which displays sharp stock market outperformance in recent weeks.
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