Western Forest Products Inc. (WEF.TO)

He is a little more concerned about forest products and lumber companies right now in the short term. One of Trump’s promises was to come down hard on trade, and one of the easiest things to come down on is the softwood lumber agreement. He is staying on the sidelines right now.

It is a regulatory risk when you look at the softwood lumber agreement. You will see more softness in these stocks. Take a long look at prices and charts, but accumulate positions because they are not making any more trees.

(Market Call Minute.) He likes this. A well-run company. They are producing lumber and are in the right position. It will benefit if US housing continues to improve.

(Market Call Minute.)

Some of the forest products have done quite well, but others are down at this time. They are having their day now. You have to be patient. It is well run.

One of the better managed lumber companies. The difference between this and some of the big guys is that they have markets in the Far East as well as Canada and the US. However, the slowdown in the Chinese market has hurt them a little, but they are continuing to work on improving their cost structure and getting better. One of the better names.

Between November through to April, basically the run-up into the spring selling season, is when the demand for lumber is. Lumber and forestry stocks tend to go higher. They average about 60% gain between November and April. Even October tends to be a positive month. Technically it is now bumping up against resistance at about $2.35.

Produces lumber and logs. Very cheap stock and pays a nice dividend. He likes the sector, particularly in the US. Very good balance sheet with debt being about half of cash flow. Trading at 9X forward earnings. He likes this quite a lot.

(Market Call Minute.) Believes that seasonally we are coming through the summer to a couple of good quarters for lumber.

The forest products sector has very, very strong seasonality. The strength is from the middle of October through until the beginning of April. The longer-term trend is still on the upside. He is looking for it to continue to move higher. If you break the level from last fall, that is the key because you could have a spurt up to around $1.92.

Commodities are not acting well, but forest products should do well because US housing is showing some recovery. That is the positive side. This is cheap and can grow its EBITDA line. Fundamentals look good, however sentiment is awful. Also, people are not taking a plunge into buying a house or renovating, when they are worried about not getting a job if you are a millennial, or losing your job if you are a Boomer. A good name and there is no reason you couldn’t buy it today, other than finessing it a little, at a lower level.

Growth outlook is good, and he believes it is really well positioned to the US and the weaker loonie. For some reason it just can’t seem to get out of its own way. Thinks the whole forest sector in Canada is a Buy. Most of them are selling into the US where they have high industry backlog and there is a really strong homebuilder confidence.

You should be quite keen on owning this as it has quite a nice dividend and it is solid. There is no risk to the dividend. The forest product sector has been doing a little better. It seems to have a better complexion than all the other commodities. This has assets in the south and in Western Canada, and has US$ positioning. Good management.

The forestry sector is cyclical. His favourite in this sector has always been West Fraser Timber (WFT-T). You have to understand that if you are going to make this kind of investment, you are going to have to deal with volatility. Companies that are in the resource sector are going to be a lot more volatile than consumer stocks. Currently this is a good story.

Still believes that US housing is one of the bright spots, and lumber is not reflecting that. Lumber stocks are all really, really struggling, because the data such as GDP, interest rates, etc. are not good for home building and lumber. If you were going to make a contrarian play he would give lumber a shot. There is a risk here and possibly more downside.