Home improvement companies may be cashing in, but there’s an even more lucrative sector that very few are talking about…
It’s easy to see why companies like Lowe’s and Home Depot are having banner years in 2013.
US housing data overall has improved greatly since the onset of the financial crisis five years ago.
Though some recent indicators show a slight softening in the housing market, especially as mortgage rates have gone up, homebuyers generally remain upbeat.
Americans appear to be gaining greater confidence in the economic recovery, and the increased spending on home renovations and improvements are a testament to that.
Investors who had the foresight to ride the home improvement wave post-recession are no doubt sitting on a tidy profit that continues to grow.
But obviously, this isn’t the only way to profit from the housing boom.
From buying real estate to investing in home construction companies, there are a variety of opportunities for investors make money.
However, there’s one overlooked sector that’s quietly handing big payouts while injecting new life into some desolate US towns.
Houses Need Wood
It might sound rather obvious, but lumber mills across America have never been busier during this recovery.
A number of logging towns that were on the verge of abandonment are now getting a second chance to rebuild because of the resurgence.
Take Eugene, Oregon for example.
With a population of 350,000, Eugene’s historic logging industry has always been a vital employer.
When the recession hit its peak in 2009, so did Eugene’s unemployment rate – which rose to 12.8% from its low of 5.1% in 2007.
But as of last December, the rate has declined to a four-year low of 8.2%, as producers have undertaken a steady rehiring process.
A similar scene is being played out in other towns as well.
Sawmills in Saratoga, Wyoming and Albertville, Alabama have recently reopened after closing down a few years back.
And a mill that’s been closed since 2008 in Davenport, New York is expected to be open in a matter of months.
But more importantly, rising demand for lumber has sent prices through the roof over the past few years.
According to Random Lengths, a lumber industry group, the composite price per thousand board feet of framing lumber has risen to an 8-year high of $415 in September, compared with $190 in January 2009…a staggering 118% premium.
Needless to say, such a tremendous boost in demand is rewarding savvy lumber and forestry investors.
The Best Stocks to Buy Today:
There’s a multitude of companies in this competitive market, but I found that Canadian-based lumber companies are giving speculators the most bang for the buck.
From a supply side, there’s been significant tightening spurred by mill shutdowns, harvesting cutbacks in Quebec and a wipeout of forests in British Columbia by the mountain pine beetle infestation of the past decade.
But construction demand from the US and China continues to outpace supply, which has translated into strong profit for Canadian producers.
And one of Canada’s biggest customers, Japan, is further boosting lumber sales as rebuilding efforts following the Fukushima disaster carries on.
As a result, Canadian firms are having an incredible run thus far. Should global demand remain at or improve its current pace, the following companies are looking bullish well into 2014:
International Forest Products Ltd. (TSX:IFP.A)
Interfor has operations in BC, as well as Washington and Oregon. This year, it established a major presence in Georgia after buying three sawmills from Rayonier, Inc. and acquiring Keadle Lumber. With RealtyTrac’s recent survey of the top recovering housing markets showing parts of Florida, Alabama, Georgia and South Carolina leading the way, Interfor is well-located to leverage a much-improved US housing market in the south.
Western Forest Products Inc. (TSX:WEF)
WEF is one of the few BC-based companies whose timber resource was unaffected by the mountain pine beetle, as much of their land holdings are along the provincial coastline and on Vancouver Island. Also, with business from the US only accounting for 13% of revenues, they are less exposed to potential housing volatility or possible return of softwood lumber export taxes.
For those looking to invest State-side, Louisiana Pacific Corp. (NYSE:LPX) is well diversified to capture market share in key regions. Not only does it have production hubs in the US and Canada, it also has plants in Chile and Brazil. And just last month, LPX bought out Vancouver-based Ainsworth Lumber for $1.1 billion to give the company greater access to Asian markets, especially Japan and China.
Bottom line: these are well-established producers that weathered through one of the worst economic crisis in history, and are still alive and well. Even though concerns linger over this current recovery, these stocks are showing they can still deliver strong returns, and are likely to do so over the next six to twelve months.