Opinions
John O'Connell, CFA
Louisiana Pacific Corp
LPX-N
COMMENT
Nov 30, 2015
Stock price when the opinion was issued
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Just acquired Ainsworth Lumber (ANS-T). Likes this sector quite a bit. Like a lot of other forestry stocks, had a huge, huge run over the last years and is now having a bit of a correction. Thinks this is a Buying correction on the way to higher highs. You have to remember these are cyclical stocks so you have to watch every quarter
(A Top Pick Jan 22/13. Down 16.21%.) This one got ahead of itself because of OSB (oriented strand board). When you look at OSB and the production and residential construction, you have seen this one come back in the last few weeks. This is a long-term hold. He is still buying more shares. Will have some volatility, so Buy on dips.
Positively predisposed towards this sector for the next year or 2. There is a bit of a North American super cycle going on in terms of the right segments of forest products. The stock has had a huge, huge run, especially last year. This has been subject to profit taking and has gone sideways for the last year. Would probably be a buyer at the bottom of its trading range.
A very levered play on the housing market. Housing starts has been hovering around 1 million per year, whereas a normalized run rate would be 1.5 million. At some point he expects housing starts to improve. This company specifically makes building products, and more specifically oriented strand board OSB. Down around 30%-35% from about a year ago. This gives you big swings. He would recommend going into something that is a little more stable.
Earnings are sort of catching up to the stock. It is selling at 29X PE ratio, which is not exactly a giveaway. Earnings forecast has been rocketing upwards, but that would still call for a downside risk of about 22%. If it doesn’t hold here, it is going to take a step down. To him, this has an abyss in front of it.
Has always stayed away from the OSB market. The business has been consolidated, and very much like the commodity business. A lot of people got very excited about the housing market, but consumers are not going to go to that great big bump like we saw in the early 2000’s. Doesn’t think it is going to be a huge growth business.