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The stay-at-home initiative, combined with looming inflation, has caused a fierce rally in lumber. Lumber futures have surged 85% since 2021 began, way past any prior high this commodity has seen, and it looks like these prices are going to stay buoyant for some time.
All this momentum is catalyzing my purchase of US lumber giant Weyerhaeuser (WY - Free Report) , as analysts rush to increase their estimates and savvy investors swarm to get in on the action. WY has been propelled into a Zacks Rank #1 (Strong Buy) as EPS estimates are driven higher on both long and short-term horizons.
WY has already had a monster rally from its COVID lows, and I am suggesting this as a momentum play. We continue to rotate out of growth and into cyclical value names like WY, which I believe still has legs as inflation and higher interest rates get priced in. Yesterday's pullback provides us with a buy-the-dip opportunity.
Buying Into The Lumber Rush
Do-it-yourself (DIY) home projects have been the hottest hobby amid the global quarantine, with the world finally running out of excuses for why they don't have time to fix the cabinets, redo the deck, build that fence, etc. I'm sure many of you can attest to this as I can.
This DIY initiative has created an enormous amount of (albeit short-term) demand for wood, which kickstarted this lumber rally. The rally will be sustained by home builders who are rushing to get houses up and on the market, as the prime mortgage rate hovers around 3 and a quarter for the first time in history (despite a marginal bounce back from their lows). Those who've been considering purchasing a new home are now pulling the trigger as the economy begins to turn around. According to the US Census Bureau and the Department of Housing and Urban Development, new home sales in March were 1,021,000, a figure that continues to drive past both analysts' estimates as well as 2019 figures. In November, single-family homes were "20.7 percent (±23.7 percent) above the revised February rate of 846,000 and is 66.8 percent (±36.7 percent) above the March 2020 estimate of 612,000."
I anticipate this uptick in new home sales to progress as the rapid economic rebound continues. With more people looking to move out of city centers and into quaint suburbs and rural areas, home builders still have a lot of work on their hands as hybrid, and completely remote working models become the norm in the post-pandemic world. This means the demand for lumber isn't going anywhere but up.
Weyerhaeuser isn't exactly a sexy company and doesn't have the same level of analyst exposure as many exciting tech firms, which makes it prone to valuations that are below intrinsic value. WY has broken out over the past 6 months with an over 40% rally, and it looks like it may be poised to go higher with momentum on its side.
WY underperformed its cohorts amid the COVID downturn because of its conservative dividend suspension to maintain liquidity amid the pandemic's uncertainty. This dividend has been reinstated in full force, with a robust $0.68 annual base dividend, representing a 1.7% yield combined with a supplementary dividend that will be based on the company's yearly cash-flows, moving forward.
Weyerhaeuser's strategic timberland in the Pacific Northwest is driving an enormous amount of growth for the company. This region is expected to continue accelerating growth as its Canadian competitors are plagued by pine beetles, causing a supply shortfall amid this lumber demand surge.
WY's wood products are also anticipated to be a significant profit driver moving forward. Analysts estimate residential construction activity to soar in the coming years, which will significantly benefit Weyerhaeuser's sales and profit margins.
WY has tracked lumber futures prices almost perfectly up until the COVID-crisis. This has presented us with a rare opportunity to cash in on the lumber rush after it happened.
Over the past 6 months, lumber futures have soared 170% to their highest level in history. I believe that the recent pullback in lumber prices presents us with a short-term buying opportunity.
From my TradingView chart below, you can see that Random Length Lumber futures (LBS) just bounced off a critical Fibonacci Retracement level at around $1,700 back down to $1,550. Inflation is not slowing down anytime soon, and I believe this minor pullback in lumber is an excellent opportunity to jump into WY.
Final Thoughts
WY is positioned to continue surging with lumber prices as inflation continues to get priced in with the broader economic recovery. This is a lucrative cyclical stock that investors have begun to pivot into as they put more of their sideline cash to work and rotate profits from their COVID winners.
As I said, this is just a momentum play to take advantage of pricing pressures in the housing market and this rotation into cyclicals and out of growth stocks. My first price target is around $42 a share, but I have seen targets as high as $50, which would represent an over 25% upside from here.
Bitcoin, Like the Internet Itself, Could Change Everything
Blockchain and cryptocurrency has sparked one of the most exciting discussion topics of a generation. Some call it the “Internet of Money” and predict it could change the way money works forever. If true, it could do to banks what Netflix did to Blockbuster and Amazon did to Sears. Experts agree we’re still in the early stages of this technology, and as it grows, it will create several investing opportunities.
Zacks’ has just revealed 3 companies that can help investors capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.
Image: Bigstock
Bull Of The Day: Weyerhaeuser (WY)
The stay-at-home initiative, combined with looming inflation, has caused a fierce rally in lumber. Lumber futures have surged 85% since 2021 began, way past any prior high this commodity has seen, and it looks like these prices are going to stay buoyant for some time.
All this momentum is catalyzing my purchase of US lumber giant Weyerhaeuser (WY - Free Report) , as analysts rush to increase their estimates and savvy investors swarm to get in on the action. WY has been propelled into a Zacks Rank #1 (Strong Buy) as EPS estimates are driven higher on both long and short-term horizons.
WY has already had a monster rally from its COVID lows, and I am suggesting this as a momentum play. We continue to rotate out of growth and into cyclical value names like WY, which I believe still has legs as inflation and higher interest rates get priced in. Yesterday's pullback provides us with a buy-the-dip opportunity.
Buying Into The Lumber Rush
Do-it-yourself (DIY) home projects have been the hottest hobby amid the global quarantine, with the world finally running out of excuses for why they don't have time to fix the cabinets, redo the deck, build that fence, etc. I'm sure many of you can attest to this as I can.
This DIY initiative has created an enormous amount of (albeit short-term) demand for wood, which kickstarted this lumber rally. The rally will be sustained by home builders who are rushing to get houses up and on the market, as the prime mortgage rate hovers around 3 and a quarter for the first time in history (despite a marginal bounce back from their lows). Those who've been considering purchasing a new home are now pulling the trigger as the economy begins to turn around. According to the US Census Bureau and the Department of Housing and Urban Development, new home sales in March were 1,021,000, a figure that continues to drive past both analysts' estimates as well as 2019 figures. In November, single-family homes were "20.7 percent (±23.7 percent) above the revised February rate of 846,000 and is 66.8 percent (±36.7 percent) above the March 2020 estimate of 612,000."
I anticipate this uptick in new home sales to progress as the rapid economic rebound continues. With more people looking to move out of city centers and into quaint suburbs and rural areas, home builders still have a lot of work on their hands as hybrid, and completely remote working models become the norm in the post-pandemic world. This means the demand for lumber isn't going anywhere but up.
Why Weyerhaeuser (WY - Free Report) ?
Weyerhaeuser isn't exactly a sexy company and doesn't have the same level of analyst exposure as many exciting tech firms, which makes it prone to valuations that are below intrinsic value. WY has broken out over the past 6 months with an over 40% rally, and it looks like it may be poised to go higher with momentum on its side.
WY underperformed its cohorts amid the COVID downturn because of its conservative dividend suspension to maintain liquidity amid the pandemic's uncertainty. This dividend has been reinstated in full force, with a robust $0.68 annual base dividend, representing a 1.7% yield combined with a supplementary dividend that will be based on the company's yearly cash-flows, moving forward.
Weyerhaeuser's strategic timberland in the Pacific Northwest is driving an enormous amount of growth for the company. This region is expected to continue accelerating growth as its Canadian competitors are plagued by pine beetles, causing a supply shortfall amid this lumber demand surge.
WY's wood products are also anticipated to be a significant profit driver moving forward. Analysts estimate residential construction activity to soar in the coming years, which will significantly benefit Weyerhaeuser's sales and profit margins.
WY has tracked lumber futures prices almost perfectly up until the COVID-crisis. This has presented us with a rare opportunity to cash in on the lumber rush after it happened.
Over the past 6 months, lumber futures have soared 170% to their highest level in history. I believe that the recent pullback in lumber prices presents us with a short-term buying opportunity.
From my TradingView chart below, you can see that Random Length Lumber futures (LBS) just bounced off a critical Fibonacci Retracement level at around $1,700 back down to $1,550. Inflation is not slowing down anytime soon, and I believe this minor pullback in lumber is an excellent opportunity to jump into WY.
Final Thoughts
WY is positioned to continue surging with lumber prices as inflation continues to get priced in with the broader economic recovery. This is a lucrative cyclical stock that investors have begun to pivot into as they put more of their sideline cash to work and rotate profits from their COVID winners.
As I said, this is just a momentum play to take advantage of pricing pressures in the housing market and this rotation into cyclicals and out of growth stocks. My first price target is around $42 a share, but I have seen targets as high as $50, which would represent an over 25% upside from here.
Bitcoin, Like the Internet Itself, Could Change Everything
Blockchain and cryptocurrency has sparked one of the most exciting discussion topics of a generation. Some call it the “Internet of Money” and predict it could change the way money works forever. If true, it could do to banks what Netflix did to Blockbuster and Amazon did to Sears. Experts agree we’re still in the early stages of this technology, and as it grows, it will create several investing opportunities.
Zacks’ has just revealed 3 companies that can help investors capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.
See 3 crypto-related stocks now >>