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Weyerhaeuser Sitting Pretty in Pacific Northwest

Export market access, BC's looming shortfall bode well for timberland owner.

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Despite the feeble state of housing starts in the Untied States, Pacific Northwest log prices have performed fairly well postcrisis, particularly when set against the uninspiring price performance of logs from the South. Access to hungry export markets (China) explains much of the strong performance. In the coming years, we expect Pacific Northwest log prices will continue to perform well as looming log supply deficits in neighboring British Columbia (a traditional source of U.S. wood supply) wrought by the mountain pine beetle promise a tight supply situation in the markets the Pacific Northwest serves. Continued growth in export opportunities to China and other developing Asian nations, while less of a sure thing than the British Columbia supply deficits, also bodes well for Pacific Northwest log prices.

Among the timberland companies Morningstar covers,  Weyerhaeuser (WY) remains a top pick, thanks in part to an outsized exposure to the Pacific Northwest region in its timberland portfolio. In contrast to timberland peers  Plum Creek (PCL) and  Rayonier (RYN), Weyerhaeuser also has a massive wood products business (lumber and panel manufacturing), so the firm is more leveraged to an eventual recovery in housing starts. Investors looking to place a bet on a housing turnaround (as opposed to a housing turnaround accompanied by significant home price appreciation) would do well to consider Weyerhaeuser. Importantly, Weyerhaeuser sits on an ample cash balance and has limited debt maturities in the coming years, a favorable liquidity profile that should mitigate the downside risk associated with continued housing start weakness.

Daniel Rohr does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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