ADN:CC - 3 Top Timber and Forest Stocks to Buy on the TSX Today

2023-10-14 09:30:00 ET

Canada is a commodity-rich country. It’s among the top five gold producers, the second-largest uranium producer, and the five largest gold producers. The country enjoys a similar position when it comes to timber as well, and while its demand cycles may fluctuate more than other commodities, some timber and forest stocks can make positive additions to your portfolio.

The largest timber company

Vancouver-based West Fraser Timber ( TSX:WFG ), which can trace its roots back to the U.S., is not just the largest timber and forest company in Canada but one of the largest producers in the world by production capacity. It’s an integrated forestry company , and its product portfolio includes a wide range of options, particularly wood panels.

This leadership position and a diversified portfolio give the company an edge. The stock has been an inconsistent performer if we look back a decade, but it experienced powerful growth after the 2020 crash and is still hovering near its all-time peak.

If the demand is high enough, there is a strong chance that the stock will experience a bull market phase. Meanwhile, the main source of returns is the dividends it offers, currently at a modest yield of about 1.76%.

A pressure-treated wood company

Stella-Jones ( TSX:SJ ) is a bit different from conventional timber and forestry companies, as it focuses more on the end products than the timber itself. It specializes in pressure-treated wood and primarily caters to the U.S. market, where it conducts about 70% of its business. The company has over 43 wood treatment facilities in the U.S. and Canada.

One of the largest business segments for the company is utility polls, responsible for 40% of the company’s sales. The company has made three major acquisitions in this regard — i.e., acquired the pole segment of the business from utility companies.

The company is financially solid and less vulnerable to timber/lumber price fluctuations. It’s also attractively valued, considering how high it has risen in the past couple of years. The dividends are an additional bonus, though the yield is quite modest.

A primary forest products company

Acadian Timber ( TSX:ADN ) is on the lower side of valuation compared to the other two, and with its $289 million market cap, it is not even counted among the small-cap stocks in Canada. But it can be a compelling pick for two reasons: yield and valuation. With a price-to-earnings ratio of just 7.5 and a price-to-book ratio of less than one, it’s undervalued and not just in the sector.

The company is currently offering a generous yield of 6.8%, and it’s backed by a solid payout ratio. The company has maintained and even grown its dividends in the past decade. So, from a dividend perspective, it’s a good pick. As for capital-appreciation potential, you may experience decent growth in the long term.

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Foolish takeaway

All three companies have characteristic business models or investment strengths, and all three can make viable additions to your portfolio. Holding them long-term may yield attractive returns, and you may experience a strong uptick in your portfolio if timber demand and prices hike up.

The post 3 Top Timber and Forest Stocks to Buy on the TSX Today appeared first on The Motley Fool Canada .

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Stella-Jones and West Fraser Timber. The Motley Fool has a disclosure policy .

2023