Norbord Inc. (OSB)

This industry has been walloped a little bit, so at this level it is fairly attractive. The big driver of this is construction and US housing. The housing market has taken a little bit of a pause. Yield of almost 8%. You can also look at West Fraser Timber (WFT-T).

Faces a bit of an overhang because OSB prices have had some pretty significant drops from its peak early last year. Pays a pretty big dividend and a lot of analysts are coming out with cautions about the dividend because the cash flow is dropping off significantly in the near-term. Company seems to be committed to maintain the dividend because they look at the dividend policy as over the cycle, which they see as robust over the next several years. Balance sheet seems very solid. Thinks this is getting into the Buy range. (See Top Picks.)

OSB prices have had a hard time. Obviously they are a function of the housing market but also of the supply response from producers. Still pretty constructive on the sector. If OSB prices go to where they think they are going to go for next year and the year after, the dividend should be safe. If the prices stay where they are, there is a risk they could cut their dividend. High cyclical sector.

Ranks fairly low in his process. There are better choices in this sector, such as Western Forest Products (WEF-T) or Canfor (CFP-T), which have stronger earnings profiles.

(Market Call Minute.) This housing market recovery is just beginning, but it’s a very competitive industry.

He has looked at lumber, strand board and insulation because of the building boom in the US. He looked at this company, but felt more comfortable with lumber. (See Top Picks.)

Tied to the housing market. Oriented Strand Board (OSB) is their single product. Not a lot of players in OSB, which should be some pricing discipline. Pricing has come from north of $400 down to about $240 recently, but doesn’t seem to be bouncing. Some worry about new capacity coming on. Stock pays out a lot of its earnings in yield, giving you an 8.5% yield. If OSB prices stay in the $240 range and don’t bounce back there is a risk that they will have to cut the dividend back at some point in time.

This really responds to OSB (oriented strand board) prices, which have been really coming down. His estimate for 2014 is that they are actually going to be soft again due to all the extra supply that is coming on. For 2015, he sees OSB prices coming back a lot. Has about a 27% position in Europe. He would accumulate on weakness.

(Market Call Minute.) Stock is at a nice high level, but then all of the building stocks and paper stocks have had enormous runs. They are at cyclical highs and he would be cautious on a long-term hold.

Well run. There is nothing concerning in their balance sheet. The biggest concern here is, do they get acquired. Pristine assets. Very attractive. A possible acquisition target.

(Top Pick Aug 10/12, Up 103.24%) He still sees upside. Potential for addition consolidation in the industry. Increasing his position. Recovery in US housing. Brookfield could act as a catalyst for a sale of this one.

Particleboard as opposed to lumber. Prefers lumber because tons of mills were shut down and it is a slow process to bring them back up to the supply/demand that is going to be very much in favour. In particleboard, there is a lot more capacity so the recovery and growth will probably be more muted.

(Market Call Minute.) Doesn’t know where it is going.

One of the largest players in OSB (oriented strand board) in North America. A US housing play and within US housing construction, this company continues to take greater and greater market share away from other alternatives such as plywood. Recession did not treat this company well. He thinks the US housing market will continue to recover over the next few years and this company will be a major beneficiary.

For a lumber stock, Canfor (CFP-T) or West Fraser (WFT-T) creates the lumber that goes into frames etc. The sheeting that goes on these frames, oriented strand board (OSB), is what this company is focused on. A little bit of price weakness but a great story. 9.3% dividend yield is quite high and raises a red flag. (See top picks.)