Lumber is one of Canada’s foremost exports, and with the real estate market exploding in recent years, so too has the price of lumber skyrocketed. Some of the most eye-catching and mouth-watering Canadian stocks come from the lumber industry, and so today we will explore some of the best lumber stocks on our watchlist.
What has fueled lumber’s growing prices hasn’t just been the housing market, however. The demand for wood for products such as furniture and books has also been on the rise, and lumber companies have been struggling to keep up. According to this recent report, the Canadian lumber industry has been one of the steadiest in recent times, with consistently reliable share prices.
The fact that these Canadian lumber stocks continue rise day by day is testament to their strength as companies well-positioned to take advantage of the growing lumber demand.
However, just like every other commodity in the stock market, the demand of lumber stocks (including that of the Canadian lumber industry) suffers fluctuations from time to time, just like the housing market.
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Best Canadian Forest Products Company in the Lumber Industry
With its strong economic outlook and massive upside potential, investing in lumber stocks now could definitely be one of the best investment decisions you will ever make. Here are some of the best lumber stocks on our watchlist.
- Pinnacle Renewables (PL.TO)
Pinnacle Renewables only began trading on the TSX over a year ago yet has grown by an astonishing 80%. At this pace, Pinnacle renewable stands as one of the biggest producers of wood products and the fastest-growing lumber stock companies in Canada.
Pinnacle provides a platform where investors can reap dividends even without investing directly in lumber production. This is because the company manufactures wood pellets and relies on industry partners when it comes to harvesting wood from the forests.
Just like other new stocks in the industry, the major challenge facing Pinnacle Renewables is the ability to pull in investors, increase the stock price, and build a solid presence in the stock market.
According to recent forecasts by numerous lumber stocks experts, the demand for Pinnacle Renewable’s wood pellets is expected to grow by 100% by the end of 2021. However, since 2019 and 2020 have been highly volatile, which has resulted in low EPS as opposed to forecasts that have predicted more stable share growth, we can only regard these predictions as educated guesses.
- Interfor Corporation (IFP.TO)
Established in 1980, Interfor Corp is one of the biggest players in the Canadian lumber stocks industry.
Interfor Corp manufactures wood-related commodities in British Columbia and the US, with over 18 mills scattered throughout the continent. Moreover, the company boasts a capacity of over 3 billion board feet per annum.
Interfor Corp is making plans to purchase new mills and upgrade the older ones to ensure higher production capacity as time goes on. This strategy is paying off because the stocks are estimated to increase in market cap by over $21 million within the next 12 months (about a 30% increase compared to the present prices).
Despite the good news in the stock prices, the company’s earnings have suffered lots of ups and downs. And for the most part, it has been on the downside over the last four quarters. However, the company recorded an annual growth of 25.84% in the last five years, with analysts predicting more growth in 2021.
Before making buying decisions, investors need to keep in mind that when lumber prices fluctuate, predictions are bound to follow suit. Thus, if you intend to invest in Canadian lumber stocks, you have to pay attention to the industry in general to determine the actual direction of prices.
In a nutshell, the Canadian lumber stocks are, in general, doing well lately as the fundamentals point to massive potential upside. As any investor knows, stock prices do not always reflect the fundamentals and prices often take a while to catch up. In the meantime, it can be said that the stock is undervalued compared to how much investors think it could be worth in the future. Interfor definitely falls into this category. With the Price-to-Earnings ratio of 25.93, Price-to-Sales of 0.67, and Price-to-Book of 1.35, do not miss out on this undervalued stock.
- Canfor Pulp (CFP.TO)
Operating in North America and Asia, Canfor Pulp is among the leading lumber corporations in Canada with high-value stocks. The company currently deals in a segment for lumber and another segment for pulp and paper, owning 4 paper mills and 24 sawmills in North America.
As of 2019, the company has had regressive growth in its share prices, striking doubts in investors as to whether the company is worth investing in. Canfor Pulp currently trades 8.7 times earnings, 0.97 price-to-book, and 0.37 price-to-sales.
However, that doesn’t take away the fact that they have some of the cheapest shares and are among the biggest producers of wood materials in Canada. With the fundamentals pointing to massive industry growth as well as the company looking well-poised to take advantage of it, do not miss out on this opportunity to get in at a low price while you can.
- West Fraser Timber Co (WFT.TO)
West Fraser Timber Co produces pulp, panels, lumber, energy, newsprints, and other wood products. They’re one of the leading producers of lumber products in Canada and have recently received a lot of attention from investors.
Benefiting from a combination of high reach in Western Canada and the Southern parts of the US, the company is positioned incredibly well in the coming years. The company is currently riding the booming U.S housing market wave.
After recently buying back their shares amounting totalling $675 million, WFT has set a one-year price target of $60.87, which has lead to some downside bearish movement. As of 2019, West Fraser’s declining stocks weren’t a great investment option. However, the company has maintained its status as one of the best lumber stocks in Canada and is set for explosive growth in the years to come. Get in early while you still can so your portfolio can ride its massive upside potential.
- Stella Jones (SJ.TO)
Stella Jones is a Canadian lumber company that specializes in manufacturing pressure-treated wood products. The fact that it operates in 5 provinces and 18 states is a testament to how big the company is.
The company has made it onto our watchlist of the biggest Canadian forest products companies because of its unbeatable lumber prices thanks to its unique propriety methods of lumber production. What’s more is that the company has a very reliable customer base since it sells mainly to highly regulated sectors.
A large percentage of the revenues generated by Stella Jones is from selling railway ties to railway companies and utility poles to power companies. These products are frequently used by these two sectors for routine maintenance and for setting up new infrastructure.
It’s not all sunshine and roses, however. One major disadvantage of this company is its high dependency on a few key sectors. For instance, over 50% of the revenues made by the company are generated from its top 10 clients. If they end up losing just one or two of these clients, Stella Jones could face a substantial reduction in revenue.
Out of all the revenue generated from their top 10 clients, 50% of this revenue is generated by the top 2. So if you do the math that means 25% of Stella Jones’ entire revenue comes from just 2 clients. This analysis shows how shallow the customer base of the company can be. Therefore, if unfortunately, the company loses just one of its customers, its revenue will take a massive hit and so will the stock price
Similar to the top-performing stocks on this list, Stella Jones is currently in a bullish trend as of today (April, 27). The Price-to-Earnings ratio is 17.35, the Price-to-Sales is 1.26, and the Price-to-Book is 2.12. Sadly, this trend hasn’t been consistent and it could consolidate for some time.
Moreover, the general earnings of the company haven’t been up to the mark over the last 12 months. But with lots of positives attached to the stocks, analysts are estimating a 19% growth rate for the next 5 years. This is definitely poised to be strong performer in the long-term.
Before You Go
Aside from the Canadian lumber stocks discussed above, many other Canada-based stocks like Canfor Pulp (CFP.TO), Hardwood Distribution Inc (HDI), Acadian Timber Corp, Canfor Corp, Conifex Timber Inc, and Western Forest Products Inc. (WEF) have all shown positive promises. A few of these companies operate primarily in Canada and Northeastern United States, creating a good level of diversification.
After a persistent stock rally in Canada, each of the stocks has had a bullish trend for the quarter. And with the fundamentals all pointing to a huge bullish trend for the foreseeable future, you should expect these stocks to follow suit.
The future is bright for the Canadian lumber industry, and savvy investors are in a great position to get in early before the explosive growth has fully taken off. You can subscribe to our email newsletter to receive information about stocks, ETFs, and other high-value commodities like silver and gold. Look through our site for further information about stocks, investments, and news. Also, feel free to reach out to us on our social media accounts.
If you are looking to read more about Canadian stocks, be sure to check out our next article which discusses Canadian dividend stocks.