The recent drop in lumber pricing and sluggish demand forced North American producers to reduce output, resulting in low stockpiles and fears of a supply crisis.
Despite the near-term challenges, we think adding high-rated stocks UFP Industries, Inc. (UFPI) and Boise Cascade Company (BCC) could be wise now.
According to Trading Economics global macro models and analyst projections, lumber will likely trade for $337.81/1000 board feet by the end of this quarter.
Additionally, as part of its aim of investing in rural America, the Biden-Harris Administration announced that $33.70 million from President Biden’s Bipartisan Infrastructure Bill would fund programs to grow the wood products industry and encourage sustainable forest management.
Tom Vilsack, Agriculture Secretary, said, “Healthy forests depend on a healthy forest products industry, and as the nation faces an ongoing wildfire crisis, it is more important than ever to invest in sustainable forest management across all lands. These investments will reduce the risk of catastrophic wildfires, support existing jobs, and create new economic opportunities in Tribal and economically disadvantaged communities.”
Cross-laminated timber is becoming more popular in construction applications as more people become aware of its benefits, which include design flexibility, fire resistance, higher thermal performance, cost-effectiveness, and others.
Furthermore, a clean and noiseless construction method, shorter construction time, and low cost have increased demand. The global cross-laminated timber (CLT) market is expected to increase at a 14.9% CAGR until 2030.
UFP Industries, Inc. (UFPI)
UFPI, through its subsidiaries, designs, manufactures, and markets wood and non-wood composites and other materials in North America, Europe, Asia, and Australia. It operates in three segments: retail; packaging; and construction.
In terms of trailing-12-month UFPI’s ROTA of 18.86% is 262.6% higher than the 5.20% industry average. Likewise, its trailing-12-month ROTC of 21.81% is 210.04% higher than the industry average of 7.03%.
UFPI has paid dividends for 29 consecutive years. Over the last three years, UFPI’s dividend payouts have grown at a 24% CAGR. While UFPI’s four-year average dividend yield is 0.95%, the company’s annual dividend of $1 yields 1.27% at the current price level.
For the fourth quarter that ended December 2022, UFPI’s packaging sales increased marginally year-over-year to $522.17 million. The company’s current assets came in at $2.26 billion for the period that ended December 2022, compared to $2.07 billion for the period that ended December 2021.
Also, its current liabilities came in at $611.84 million, compared to $776.04 million for the same period the prior year.
The consensus revenue estimate of $8.41 billion for the year ending 2024 represents a 4.6% increase year-over-year. Its EPS is expected to grow 9.3% year-over-year to $8.46 in 2024. It has surpassed EPS estimates in all four trailing quarters. The stock has gained 9.3% over the past nine months to close its last trading session at $78.95.
It’s no surprise that UFPI has an overall B rating, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has an A grade for Value and B grade for Sentiment and Momentum. It is ranked first among six stocks in the B-rated Industrial – Wood industry. To access additional ratings for UFPI’s Growth, Stability, and Quality, click here.
Boise Cascade Company (BCC)
BCC engages in manufacture of wood products and the distribution of building materials in the United States and Canada. It operates through two segments, Wood Products, and Building Materials Distribution.
In terms of trailing-12-month BCC’s ROTC of 32.31% is 359.4% higher than the 7.03% industry average. Likewise, its trailing-12-month ROTA of 26.47% is 408.8% higher than the industry average of 5.20%.
BCC has paid dividends for four consecutive years. Over the last three years, BCC’s dividend payouts have grown at a 12.4% CAGR. While BCC’s four-year average dividend yield is 6%, the company’s annual dividend of $0.60 yields 0.92% at the current price level.
BCC’s net sales increased 5.8% year-over-year to $8.39 billion for the year that ended December 31, 2022. Its net income grew 20.4% from its year-ago value to $857.66 million. The company’s EPS came in at $21.56, an increase of 20% year-over-year. Its adjusted EBITDA came in at $1.26 billion, up 19.5% year-over-year.
Street expects BCC’s revenue to increase 2.3% year-over-year to $6.97 billion in 2024. Its EPS is estimated to increase marginally year-over-year to $7.22 in 2024. Over the past six months, the stock has gained 8% to close the last trading session at $65.50.
BCC’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, translating to Buy in our proprietary rating system.
It also has an A grade for Value and a B grade for Momentum and Quality. Within the same industry, it is ranked #2. Click here to see the additional ratings for BCC (Stability, Sentiment, and Growth).
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UFPI shares were trading at $77.94 per share on Friday afternoon, down $1.01 (-1.28%). Year-to-date, UFPI has declined -1.37%, versus a 7.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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