Paper and wood product index up 6% for first half of 2012; outperforms Dow Jones
July 11, 2012
(Industry Intelligence Inc.)
– U.S. forest products stocks rose almost 6% over the first six months of 2012, outperforming the Dow Jones Industrial Index, according to Industry Intelligence Inc.
Industry Intelligence compiles the U.S. Forest Products Stock Index which measures the financial performance of 29 companies.
The index rose 5.8% from the beginning of January through June, closing June 29 at 103.18. In comparison, the Dow Jones Industrial Index rose 3.1% for the same time period.
The U.S. Forest Product Index is a 5-year-old market-weighted index that measures stock trading activity of sector participants who manufacture wood, paper, pulp and packaging.
The index did not outperform the S&P 500, which rose 7.8% over the first half of this year.
The index performed half as well, however, compared with the same six months in 2011. For the first half of last year, the index rose 11.2%.
One of the biggest gainers for the six months was wood products company Louisiana-Pacific, which rose 34.8% to close at US$10.88 on June 29. This small-cap stock offers investors a value price and has a solid business; analysts say it’s a good bet for those making a play on the gradual recovery of the housing market.
Louisiana-Pacific is the No. 1 producer of oriented strand board in North America. The recent strength in OSB pricing allowed the company to report a smaller-than-expected loss in the first quarter and a possible return to profitability in the second quarter.
Another wood products company that did well was Universal Forest Products, which rose 26.3% over the first six months of 2012. It closed June 29 at $38.98. Universal Forest, which makes lumber products, had an upbeat first quarter, turning to a profit from a loss the previous year.
Timber grower and manager Pope Resources rose 28.1%, benefitting from increased log exports.
Equity Research Associates analyst Kevin Mason said earnings for the wood products companies are “expected to be on an upward trajectory for the next few years, so after several very tough years, the future is finally looking rather bright with the U.S. housing market slowly improving.”
Graphic Packaging rose 29.1% to close at $5.50/share. Investor sentiment is that there is considerable upside to the trading price.
Coated paper manufacturer Verso Paper did well through June, even before its stock soared in early July after proposing to buy rival NewPage. On March 8 the stock rocketed up on news of a bond issue, rising from an open of $1.23 to a high of $3.36 that day for a 170% gain. The stock closed June 29 at $1.18, a gain of 22.9% from January.
Among the biggest losers was Resolute Forest Products, which dropped 20.4% over the six months. The company, formerly known as AbitibiBowater, closed June 29 at $11.58. The company’s primary product is newsprint, which is declining with the newspaper industry.
Mason said Resolute’s exposure to the newsprint export market “has been a definitive depressant.”
Buckeye Technologies fell 14.8%, hurt by a quarterly report that missed on the top and bottom lines. It also announced that a structural failure of a specialty pulp line that caused a shutdown in June would impact fourth-quarter earnings.
Domtar dropped 4.1% in the six months and closed June 30 at $76.71. It lost 18% over the second quarter.
Sonoco Products dropped 8.5%, hurt by a smaller quarterly profit that took a hit from higher expenses.