Why The Best Lumber Stocks Aren’t What You Expect

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Why The Best Lumber Stocks Aren’t What You Expect

Are you looking for the best lumber stocks for your portfolio this year? It’s not surprising since there is increased demand for wood and other products made from it. However, our picks come from the companies that produce the latter.

We will go straight away into our list of the most promising lumber stocks of 2021. Then, we will explain the ongoing lumber shortage and how it affected our picks. Moreover, we will go through the other ways you can invest in this commodity.

It’s important to monitor market trends to find the best investments. Still, it’s a good idea to have different perspectives on these assets instead of blindly purchasing them. As a result, you might earn more than other people investing in the same assets.

The 5 best lumber stocks for 2021 (so far)

  1. Packaging Corporation of America (PKG)
  2. Kimberly-Clark Corporation (KMB)
  3. Resolute Forest Products Inc. (RFP)

#1. Packaging Corporation of America (PKG)

As the name suggests, the company sells cardboard packaging. This could be used for various purposes, such as consumer goods and deliveries.

You might see this as an odd choice for a worthwhile lumber stock. Yet, investing in this company lets you ride another market trend. We’re referring to the rise of online deliveries.

More people are buying things from the internet. Cardboard boxes usually contain these knick-knacks. What’s more, more folks try to become online sellers too.

Then, there’s the rise of dropshipping. It’s when a company lets another supplier deal with its sales orders. Also, that third party is in charge of delivering to customers.

That affiliate could be another person. All these seemingly random trends mean more people using cardboard! It’s becoming one of the remote work options that are trending nowadays.

As a result, the Packaging Corporation of America is likely to profit even more. And the stock charts seem to prove it too! At the time of writing, PKG’s stock price rose to $142.64.

#2. Kimberly-Clark Corporation (KMB)

Did you recently buy tissue paper? Perhaps you bought some diapers for your kid? If so, those probably came from Kimberly-Clark. This seems like another strange lumber stock option, right?

Their products also use materials from trees. It’s just that it mainly turns wood into pulp. However, these goods have a relatively consistent demand.

As for tissue paper, just look back at the early days of the pandemic. People grabbed as much as they could! After all, families still need diapers for their children and the elderly.

In other words, people aren’t going to stop buying Kimberly-Clark products any time soon. The share price seems to support our choice too.

Why is this below PKG stock? We based our decision on consumer behavior. The toilet paper panic last year has cooled off. Yet, people will still buy some for their homes.

The same can be said for baby care toiletries. While some buy extra, it’s often a consistent amount. Meanwhile, PKG packaging is likely to trend higher as more people find ways to earn.

At the time of writing, the KMB stock price was $134.25. It rose from $133.25 back on August 5, 2021. With reliable demand, we may see increased value in the long term.

#3. Resolute Forest Products Inc. (RFP)

Here’s a more conventional pick for the best lumber stocks. Resolute Forest Products Inc. is a lumber company based in Canada. Yet, it sells goods to the United States and Mexico as well.

There are four types of RFP products: market pulp, tissue, wood products, and paper. It’s similar to Kimberly-Clark, except it also sells construction materials.

With this different product type, you might be wondering why it doesn’t top KMB. That’s because of the latest news regarding Canada’s timberlands.

On July 20, 2021, British Columbia declared a state of emergency. A lot of wildfires have destroyed numerous trees. As a result, it severely cut production for sawmills.

This could put their other products at risk. After all, those are made from pulp derived from those trees. RFP is still worth considering, though.

The share price was $11.76 at the time of writing. Due to the boost in housing demand, we may see the value go up soon. We’ll explain why this could be short-lived, though.

How did we get a lumber shortage?

How did we get a lumber shortage?

If you’re looking for lumber stocks, you’re probably aware that there’s a huge demand for them. Unfortunately, it’s due to the lack of supply and an abundance of demand.

These two stem from several other factors. Learning what they are will help with your investment choices. Read more details below:

  • Housing market – More people want to buy homes. In response, investors are turning them into rental properties. Others build new houses for the same purpose. Together, these behaviors fuel the lumber demand.
  • Decreasing supply – Wildfires are happening around the world, ruining several million acres of timberlands. Following the law of supply and demand, lumber prices tend to go up. This means fewer trees to turn into paper and wood products.

Why choose these as the best lumber stocks?

Why choose these as the best lumber stocks?

Now, we will explain why we picked these three. We could have chosen UFP Industries, Boise Cascade, or West Fraser Timber. These conventional options are riskier, though.

Wood is a commodity. It’s a material you may sell or trade for other products. Unfortunately, many things can affect its prices. There’s a way to mitigate this risk, though.

The companies we chose are doing it by providing different types of products. While they all come from trees, the demand for each may differ.

Take tissue paper, for example. It may seem like a mundane product. People will always need it to clean things at home! Yet, we said that there’s consistent demand for it.

On the other hand, wood relies on housing demand. As home prices continue to climb, even regular people are expecting it to become a market bubble.

In other words, the demand spike for wood might tumble soon. Meanwhile, demand for other products made from it will likely remain. That’s why these three were our best lumber stocks!

Other ways to invest in lumber

Other ways to invest in lumber

You’ve seen how risky it is to invest in timber companies. Still, there are other ways you can earn from this industry. Learn more about these alternative methods below:

  • Exchange-traded funds (ETFs) – These buy stocks from companies in different aspects of the timber industry. If one fails, the others may prop up the ETF’s value. The iShares Global Timber & Forestry ETF is one example.
  • Real Estate Investment Trusts (REITs) – They tend to focus on these timber industries: wood production, trees, and real estate. However, this specialization can make them more prone to economic downturns.
  • Mutual Funds – These are investment options that try to beat a market index. Timber mutual funds buy shares from the timber industry. You’ll have to pay for management fees, though. If you’re not careful, you may spend on a mutual fund without making significant returns.

Final thoughts

Don’t ride an investment trend blindly. Learn about lumber stocks before you buy. See the business model that guides their companies. Look at their market data as well.

This means comparing year-on-year profits, for example. Find options that provide dividend yields. These could become passive sources for cash flow.

There are other alternatives for fixed-income investors. You might want to buy bonds, index funds, or even real estate. Again, know what you’re getting into beforehand.

Learn more about the lumber stocks

How long will the lumber shortage last?

This is hard to predict. There are so many things that could affect lumber supply. Worse, wildfires have ruined many timberlands.

Why is lumber so expensive now?

Simply put, there’s huge demand. More people want to buy because of the housing boom. Folks want to turn them into rental properties as well.

What is the best lumber stock to buy?

Here are our picks for the best lumber stocks. We picked them because they have other products aside from wood:

  1. Packaging Corporation of America (PKG)
  2. Kimberly-Clark Corporation (KMB)
  3. Resolute Forest Products Inc. (RFP)

You may find other stocks that are better than these. At the time of writing, it’s just the 3rd quarter of 2021. Many things could happen that can affect stock prices.