Raging Bull

It was standing room only for the North American Wholesale Lumber Association’s Regional Meeting in Vancouver yesterday. Daryl Swetlishoff, Senior Managing Director of Equity Research at Raymond James, was the second of three speakers. Many in attendance first heard Daryl speak three years ago at the NAWLA Regional. They were back, anxious for an update. It’s been said here before, but Daryl is somewhat of a rock star in forest equities circles. Against a backdrop of chaotic markets this week, his surefire outlook was as energizing as the cool breeze blowing through the windows of the Grand Ballroom. A summary from my scribbles:

Lumber Market

  • Acknowledged market volatility at present – “2015 is when we’ll see an ‘inflection point’ in the lumber market”
  • Illustrated lumber price sensitivity to U.S. housing and net exports – boils down to “a one-dimensional problem.. the only call you’re making is can housing get a little better in the U.S… where’s the lumber going to come from?”
  • Anticipated better activity while also improved rail car supply in Q2 – unsure how that will play out
  • Suggested he’s not nearly as bullish on OSB – “we don’t have the same conviction (on OSB) as we do on lumber”

 

U.S. Housing Market

  • Said he anticipates a better spring selling season than feared, while noting the market lacks a sense of urgency compared to last year – sees more activity in higher-end properties/communities
  • Pointed to three bullish factors: residential spending has improved, affordability is normalizing, and listed “for sale” inventory remains near record low levels
  • Noted “first time buyers still left out of the party” = pent up demand
  • Illustrated how new home sales by price segment key to higher activity ahead
  • Illustrated macro housing conditions required for trend housing starts of 1.44 million units – “I have faith we’re going to get there”
  • Forecasted 1.09 million starts this year, 1.22 million in 2015, and 1.44 million in 2016

 

Forestry Stocks

  • “I love this industry because there are so few people paying attention to it” – of eight analysts, “only four are paying attention”
  • “Building materials stock have attractive valuations”
  • Illustrated seasonal trades over the past four years
  • “West Fraser is 15% off the high.. we’ve already felt the impact of the seasonal trough.. stocks have already corrected”
  • “My advice is to step in and start buying now while there is liquidity”
  • “Stocks have gone up 250% since the last time I was here, and there’s still a lot of upside”
  • “Whether or not you buy Interfor (back) at $14.75 or $15, it’s going to $30”
  • Said prospective investor response typically “Really? All I have to bet on is the U.S. housing market getting better?”

 

Leave a Reply