10 forestry stocks to consider as sector hits a five-year low

Globe and Mail

02-06-2025

Most publicly traded Canadian forest products companies are at or near five-year lows. In a cyclical industry such as this, historically that would imply upside opportunity once lumber prices turn back up. The price of lumber has been trading between US$450 and US$650 per 1,000 board feet (bdft) for three years and currently sits near US$600. U.S. housing starts over that time period have ranged between 1.25 and 1.6 million units, with April figures coming in at 1.36 million. With interest rates expected to drop over time and a housing shortage in North America as potential catalysts, offset by continuing duties and tariffs and potentially higher future tariffs, are these stocks worth looking at currently?
We used StockCalc's screener to select the Top 10 listed forest product stocks by market capitalization on the TSX. We then used StockCalc's valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see if it is undervalued or overvalued compared with its price.
Overview of the techniques used:
StockCalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. StockCalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to StockCalc using the promo code 'Globe30,' which offers a 30-day free trial and special pricing for the second month.
This industry is composed of companies that grow, mill or manufacture wood products for construction or manufacture paper and paper-related products from wood pulp or other fibres. As with many industries, stock prices are very dependent on underlying commodity prices and, for this industry, duties and tariffs.
Since the softwood lumber dispute started in 2002, the U.S. has periodically imposed countervailing duties (CVD) and anti-dumping duties (AD) on Canadian softwood lumber that Canadian companies have to pay. (In most cases, the Canadian exporter on shipments to the U.S. is listed as the importer, so in effect, the Canadian exporter pays the duties.) The U.S. Department of Commerce increased total duties on Canadian softwood lumber in August, 2024, to 14.54 per cent and in March of this year they announced another 20-percentage-point increase for later this year, taking the total to 34.45 per cent (14.38 per cent CDV plus 20.07 per cent AD). Canadian forestry companies have paid a total of USD$10-billion in duties since 2017.
These duties and tariffs lead to increased construction costs, higher home prices, reduced affordability, loss of Canadian market share in the United States, mill closings or curtailments here, a shift to faster-growing Southern Pine, Canadian companies expanding operations into the U.S. South/Southeast and overall uncertainty in the sector. One of the benefactors is the balance sheets of U.S.-based forest companies, which own large tracts of timber land. Rising prices, even artificially inflated by CVDs, means standing timber has more value.
Five of these stocks pay a dividend, three of them are currently profitable and all have a negative one-year stock price return. These companies are asset-intensive and you can see our ABV calculations imply they can be priced much higher. The average price-to-book (PB) ratio for these stocks is 0.7, with nine of the 10 stocks below 1.0 and seven below 0.6. This industry has not seen an average PB ratio above one for three years now. Before COVID, PB ratios ranged between one and two for this industry. The TSX 60 currently has a PB ratio of 2.27.
Let's look at a few companies:
West Fraser Timber Co. Ltd. (WFG-T) is a softwood lumber company that also produces wood panels and pulp products. The company has lumber mills in British Columbia, Alberta, Europe and the southeastern United States. After its acquisition of Norbord in 2021, West Fraser is now one of the largest oriented strand board producers in the world. Our models are both above and below current price with our weighted valuation in line with current price.
Interfor Corp. (IFP-T) produces and sells lumber, timber and other wood products. Its geographic segments are the United States, Canada, Japan, China/Taiwan and other exports with the majority (60 per cent) of its revenue from the United States. From their most recent quarterly filing, Interfor has paid cumulative duties of US$607-million, or $12.32 a share on an after-tax basis, as at March 31, 2025. Our models are showing upside over the next year, especially the adjusted-book and analyst targets.
You can see in the accompanying table the percentage difference between each stocks recent closing price and its intrinsic value. The 'StockCalc Valuation' column is a weighted calculation derived from the models and analyst target data if used.
Investing involves risk. StockCalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis. Brian Donovan, CBV is the President of a Canadian FinTech based in Miramichi, N.B. Brian owns positions in Canfor and Western Forest.
Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.