Want to hedge against inflation and government money printing? Want to earn big dividends?
Then you should consider owning timberland stocks…
But timberland stocks have soared… As measured by the ETFs “CUT” and “WOOD,” shares of timber and forestry companies have more than doubled from their lows last year.
Earnings are up. And lumber prices are up. Investors are optimistic. So is now a good time to buy?
Even though you can buy timberland for just $1,200 an acre and earn a 4.6% dividend through a stock like Plum Creek Timber (PCL), now might not be a great time to buy these shares.[ad#Google Adsense]”I don’t believe the recent jump in lumber prices will hold,” The Expert told me last week, as we traipsed around a timberland property I was considering buying.
The Expert said the higher lumber prices shouldn’t stick around… because there’s PLENTY of wood out there – “on the stump.”
“It’s about simple supply and demand,” he explained…
There’s no real DEMAND out there for lumber today… There’s no homebuilding going on. The large timberland owners know this. They’re smartly deferring their log harvests for better times.
So the recent lumber price jump is more about SUPPLY and speculators. There might be a lack of short-term supply right now… But trust me, there’s PLENTY of wood supply on the stump out there. If prices stay high, that wood will be cut. Future demand will be met very quickly with supply.
You see, one of the great benefits of owning timberland is that you don’t have to harvest it every year. It’s not like fruit, where it’s ripe just once and then you have to pick it. Instead, it grows exponentially on the stump for years.
So the key to maximizing the value of your timber is patience… You wait to harvest until the market for wood is good. Right now, it’s a bad housing market. So many timberland companies are deferring their harvest.
Fortunately, we have plenty of uses for wood products… Homebuilding will recover at some point. And every year, we’re seeing greater demand for wood for energy use (like wood pellets). Currently, wood “pulp” – the raw material of paper products – is going strong. Think of the simple cardboard box as an example. While the housing market might be dead, people are still shipping stuff in boxes all over the world. And those boxes are made from trees
The thing is, while I like the idea of owning timberland… and I like the idea of owning it in the stock market… right now, the prices of timberland stocks are too high
Your purchase price matters when you buy timberland. And today, your best bet would be to buy the land itself, if you can afford it, as opposed to buying it in the stock market…
Timber stocks like Plum Creek and Rayonier aren’t great bargains right now. But I do look forward to buying them someday… 20%-25% cheaper, and I’d be a buyer.
— Steve Sjuggerud[ad#jack p.s.]
Source: Daily Wealth