The lumber sector is finally stirring again, after years of low demand for new residential homes both across the U.S. and abroad (especially in China), thorny supply chain issues, inflation-driven high prices and inflated mortgage rates.
This year, building products have turned the tide as demand has risen not only for new homes, but also for home and commercial-property repair and for exported building goods, thanks to improving economies overseas. Overall, lumber prices are up significantly in mid-2023, with the benchmark lumber futures contract climbing to $540 as of July 24 after hitting a high near $590 in mid-July — up from $483 back in late March.
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While the market has a ways to go, home building should serve as a primary driver of lumber activity going forward. “Home building, along with mortgage rates and purchasing power, has a direct impact on lumber demand as the majority of North American houses are constructed with two-by-fours and wooden panels,” says Massachusetts-based Forest Economic Advisors LLC. “A flurry of rate hikes in 2022 leads FEA to forecast that U.S. housing starts will drop nearly 17% year over year in 2023, to 1.3 million, before rebounding to 1.55 million in 2024.”
As lumber awakens from a long slumber, these seven industry stocks should continue or start delivering the goods for the rest of 2023 and into 2024 — but you’ll likely need to be patient:
| Lumber stock | YTD performance as of July 24 |
| International Paper Co. (ticker: IP) | -4% |
| Boise Cascade Co. (BCC) | 50.2% |
| Weyerhaeuser Co. (WY) | 15.1% |
| West Fraser Timber Co. Ltd. (WFG) | 22.1% |
| UFP Industries Inc. (UFPI) | 26.2% |
| Simpson Manufacturing Co. Inc. (SSD) | 70.2% |
| LL Flooring Holdings Inc. (LL) | -32.2% |
International Paper Co. (IP)
At an $11.6 billion market cap, International Paper is one of the tallest oaks in the lumber sector. The Memphis, Tennessee-based company specializes in the manufacturing of paper and packaging products and can boast a deep pedigree, as it’s been around since 1898. The stock is currently drifting, at $32.37 per share as of July 24, and it is down 4% year to date. On the upside, IP has been on a modest streak over the past 30 days, up 5.8% due primarily to higher industry demand for paper and pulp products and an upbeat second-quarter earnings estimate. Analysts have taken note, with RBC Capital’s Matt McKellar issuing a July 19 “buy” rating for IP stock along with a price target of $38 per share.
Boise Cascade Co. (BCC)
This Boise, Idaho-based engineering wood products manufacturer has been on fire in 2023, with its share price up 50.2% on a year-to-date basis, closing at $98.75 on July 24. Truist Financial upgraded the stock from “hold” to “buy” in late June, and BofA Securities upgraded it to “neutral” from “underperform” on July 10.
Why the upbeat sentiment? For starters, BCC has benefited from the rising new-construction boom (U.S. housing starts were up 22% from April to May 2023). Meanwhile, lumber futures are up 13.1% since April 2023. Truist’s Michael Roxland notes, “The worst of the housing slowdown is behind the industry.”
That’s good news for BCC shareholders, who should get confirmation of the company’s healthy Q2 earnings when they roll out on July 31.
Weyerhaeuser Co. (WY)
Founded by Frederick Weyerhaeuser in 1900 and headquartered in Seattle, Weyerhaeuser makes its hay in the manufacturing, distribution and sale of lumber-based products. With a massive market cap of $25.2 billion and a fat dividend yield of 2.2%, Weyerhaeuser has delivered a solid 15.1% return on its shares in 2023.
With lumber prices up, Raymond James included Weyerhaeuser in its list of “top buys” in early June, citing the company’s massive production of lumber — about 950,000 miles of the wood stuff annually.
BMO Capital Markets analyst Ketan Mamtora says rising lumber prices and disruptive forest fires rolling across Canada have made lumber an in-demand commodity, with should benefit WY shares. Mamtora says the company’s stock is trading at a 25% discount to estimated asset values.
“Our math suggests that investors can currently purchase the largest U.S. timberland portfolio at a healthy discount to private valuations, and get Weyerhaeuser’s industry-leading, low-cost wood-products manufacturing platform for free,” Raymond James said in its research note.
West Fraser Timber Co. Ltd. (WFG)
This Vancouver, British Columbia-based lumber and wood products producer has seen its shares rise by 22.1% in 2023 as of late July. Analysts are starting to line up behind WFG stock, with RBC Capital’s Paul Quinn holding a “buy” call on WFG with a price target of $110 (it closed at $87.54 per share on July 24). CIBC’s Hamir Patel also stuck with a “buy” estimate on WFG stock recently, with a significantly higher price target of $144 per share.
Meanwhile, consensus analyst estimates see a price target of $104 per share — 18.8% more than current share price levels. That’s good news for shareholders who are benefiting from West Fraser’s ascension in 2023 (some pundits call it the “King of Lumber”), as the company boasts a three-year revenue growth rate of 25.3% and a net profit margin of 20%.
UFP Industries Inc. (UFPI)
Founded in 1955, this Grand Rapids, Michigan-based company specializes in the supply of wood products, mostly for the retail, packaging and construction sectors. Its shares are up 26.2% in 2023 as of July 24 and up 10.3% over the past month. UFP is rising as demand for wood-based products for residential home repairs increases among U.S. homeowners, many of whom are locked into sub-4% mortgage interest rates and have no intention of moving, given July’s rates around 7%. The stock also has a modest dividend yield of 1%.
Simpson Manufacturing Co. Inc. (SSD)
Like several companies on this list, Simpson Manufacturing is gaining momentum based on a major uptick in home restoration spending. The curbing of new mortgage applications by 30% in 2023 has helped boost stocks like SSD significantly. Simpson’s stock has risen by 70.2% in 2023 as of July 24 and is up 39.5% over the past year, as the company sells more of its baseline wood and concrete construction goods to meet the needs of U.S. homeowners.
The company’s financials look solid, with Q1 net sales up 8.3% to $534 million and gross profits soaring 6.8% to nearly $253 million. Simpson’s total assets were also up by 12.1% to $2.6 billion. Q2 sales ticked up slightly year over year, finishing at about $598 million.
In the company’s Q2 earnings call on July 24, executives said Simpson’s national retail business was a strong point, with double-digit increases in volumes. All in all, as long as consumers keep spending on home improvements (and everything points to that happening in the second half of 2023), SSD shareholders should continue to see stellar results this year.
LL Flooring Holdings Inc. (LL)
For a smaller lumber play with a ton of upside, take a look at Richmond, Virginia-based LL Flooring, which specializes in the retail end of the lumber market and sells hard-surface flooring with enhancements and accessories. It also sells tools under the Bellawood and CoreLuxe brands.
Formerly known as Lumber Liquidators, LL Flooring recently rejected a cash buyout bid from F9 Brands subsidiary Cabinets To Go at a per-share price of $5.76. In a June 16 statement, LL Flooring stated the per-share offer “significantly undervalues the worth of LL Flooring, its business and prospects, and is not in the best interests of the company and its shareholders.”
LL shares are up 16.2% over the past three months, as the company stands to benefit from the U.S. home restoration boom. With multiple new C-suite appointments in the past month, some new blood should reinvigorate LL Flooring’s stock price going forward.
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