Pat McKeough responds to many requests from members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions.
Q: Hi, Pat: I was just wondering if I could get your thoughts on Western Forest Products. Thanks.
A: Western Forest Products (symbol WEF on Toronto; www.westernforest.com) is the largest woodland manager and lumber producer on the B.C. coast.
The company has an annual available harvest of 6.4 million cubic metres of timber, of which 6.2 million comes from Crown lands. It can also process more than 1.1 billion board feet of lumber at seven sawmills and two remanufacturing plants.
Western’s main activities include timber harvesting, reforestation and sawmilling logs into lumber and by-products (such as wood chips). Its products are sold in more than 25 countries.
Resource stocks: Collapse of the ruble pushing some Canadian lumber out of growing Chinese market
In the three months ended December 31, 2014, Western’s revenue declined 3.9%, to $232.6 million from $242.0 million a year earlier. Earnings per share fell sharply, to $0.03 from $0.13.
U.S. lumber demand is holding steady on gradually improving home construction and continued strength in renovation markets. That’s offsetting lower Japanese demand and price declines in China. The collapse of the ruble and the lower euro are also encouraging China to import more lumber from Russia and Europe, pushing some Canadian lumber out of the growing Chinese market.
Western’s $73.0 million of long-term debt is a low 9.8% of its $746.2-million market cap. That’s important for a firm in a cyclical business like forestry.
The stock trades at 7.2 times this year’s forecast earnings of $0.25 a share. Western pays dividends at a rate of $0.02 a quarter, for a high 4.4% annualized yield.
Inner Circle recommendation: HOLD for aggressive investors who want exposure to U.S. housing markets.
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Pat McKeough responds to many requests from members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. 
