Lumber stocks are publicly traded companies that cut, process, market, and sell wood products. These stocks have seen some immense growth over the last two-and-a-half years, fuelled by Canada’s insatiable appetite for homes and the world’s push for more sustainable construction projects.
For investors looking to profit off Canada’s immense demand for timber and housing, lumber stocks can be an attractive alternative to full-on real estate investing.
Let’s delve into these hot stocks and see if they’re right for your holdings.
Related: List of stocks in the TSX materials sector
What are lumber stocks?
Simply put, lumber stocks are companies whose main products are wood or wood pulp. A sawmill company that cuts and sells 2x4s, for instance, is a lumber stock, as is a company that makes paper reams and cardboard packaging boxes.
While the companies in this market sector are incredibly diverse, they typically fall into one of these categories:
- Roundwood companies produce wood in “log” form, such as poles, posts, and girders (think utility poles used to connect telephone wires).
- Sawn wood companies saw wood in different dimensions and forms for use in home building, furniture making, and home renovations.
- Pulp and paper companies make paper and cardboard products from wood pulp.
Top Canadian lumber stocks
Canada is the second largest producer of wood in the world, with wood exports making up $17 billion in annual sales. As such, the Toronto Stock Exchange (TSX) has some of the largest lumber companies, including the following three:
| Lumber Stocks | Description |
| West Fraser Timber (TSX:WFG) | Vancouver-based wood company that manufactures and sells lumber |
| Canfor (TSX:CFP) | Softwood lumber and pulp company with operations across Canada |
| Stella Jones (TSX:SJ) | Lumber producer that makes utility poles and lumber used in home building |
1. West Fraser Timber
Based in Vancouver, West Fraser is one of Canada’s largest and most diversified lumber companies.
Indeed, this company is involved in almost every aspect of lumber production and manufacturing, including engineered wood products (such as particleboard and plywood), wood pulp, wood chips, newsprint, paper, tissue, cardboard, and box materials, just to name a few.
In 2021, West Fraser acquired another Canadian timber company, Norbord, which has now helped it become the world’s largest producer of oriented strand board. Most recently in November 2023, West Fraser completed the acquisition of Spray Lake Sawmills in Cochrane, Alberta.
In 2023, West Fraser experienced a significant sales drop to $6.454 billion from $9.701 billion in 2022, with losses of $(167) million compared to a profit of $1.975 billion the previous year. Despite challenging financials, marked by weakened demand for lumber and European panel products, the company saw resilient demand in other engineered products due to strong new home construction markets. CEO Sean McLaren emphasized the year’s strategic progress through acquisitions, divestitures, and investments, despite the financial downturn. Looking ahead, West Fraser aims to navigate potential market uncertainties with a focus on long-term strategic improvements.
2. Canfor
Another lumber company hailing from Vancouver, Canfor is North America’s leader in integrated forest products. Its main products include softwood lumber, engineered wood products, and specialty wood. Canfor is also the world’s largest producer of sustainable lumber, with stakes in both green energy and green pellets.
Canfor has lumber mills in British Columbia, Alberta, and the Southeastern United States. It’s also made numerous strategic acquisitions, such as its recent purchase of Millar Western Forest Products.
In 2023, the company faced a significant operating loss of $532 million and a shareholder net loss of $326 million, with the losses exacerbating in the fourth quarter. Despite these challenges, the company’s operations in Europe and the US South performed solidly, contrasting with the ongoing difficulties in British Columbia. The year was also marked by the successful implementation of a capital growth program in the US South.
However, global lumber market conditions remained difficult, with prices and demand contributing to declining results across all lumber regions, particularly in Western Canada. The fourth quarter saw a moderate improvement in global pulp market fundamentals, evidenced by a slight increase in demand and a 20% boost in pulp production.
3. Stella Jones
Stella Jones is another Canadian lumber giant that focuses on two segments: pressure-treated wood (such as utility poles, residential lumber, and railroad ties) and logs and lumber (lumber for home-building projects).
Stella Jones has been profitable for 20 straight years. The company is also a dividend aristocrat (the only one in the industry), and it has raised its payout for 17 consecutive years.
Stella-Jones experienced a strong performance, reporting a 38% increase in Q4 EBITDA and a 35% rise in net income to $326 million, with earnings per share increasing by 43% to $5.62, helped by share buybacks. The company’s strategic focus on network assets and acquisitions resulted in a net debt-to-EBITDA ratio of 2.6x, while dividends grew by 15% to $0.92 per share, continuing a 20-year trend of dividend growth.
With inventories reaching $1.6 billion, Stella-Jones is well-prepared for infrastructure demand, achieving sales of $3.3 billion, close to its $3.6 billion target. Despite challenges like economic factors and increased competition, the company is optimistic about reaching a 16% EBITDA margin by 2025.
Investing in foreign lumber markets
Though you can find plenty of exciting lumber stocks within Canada, you might also want to look down south to the U.S. to diversify your holdings. For those interested in international stocks, here are three U.S. lumber companies you might want to consider.
| Lumber Stocks | Description |
| International Paper | Major producer of paper products, such as Hammermill, Williamsburg, and Springhill |
| Boise Cascade | Manufacturer of wood products and building materials used to construct homes |
| Resolute Forest Products | Diversified lumber company with a wide range of products, such as newsprint, commercial paper, and timber |
Are lumber stocks right for you?
The good thing about timber is that it plays an essential role in home building and furniture making. As long as demand for these remains high, lumber stocks can present investors with immense upward gains.
Right now, lumber stocks are appealing, due to the red-hot demand for timber. While prices have fluctuated over the last year, lumber is still more expensive than it has ever been before. Prices hit an all-time high of $1,711 per thousand board feet in May 2022.
Before its current bull run, stretching from late 2020 until mid-2022, Canadian lumber companies had another recent period of immense growth in 2018. The all-time high back then: $582 per thousand board feet.
That 193% increase in timber prices between two all-time highs is the reason lumber stocks are expected to grow in the foreseeable future. But be warned: lumber prices may not always be this high, nor are they guaranteed to go any higher.
Like other commodities, this industry is extremely cyclical, with most of its upward growth tied to the housing market. When the demand for houses slows down, timber prices will likely fall and lumber companies could experience revenue losses as a result.
Surging demand is also over-stressing lumber companies. Many mills have such a long backlog of orders; they’ve simply produced more lumber than they can safely store. Some mills have even had to close temporarily, as they’ve accumulated an unsustainable level of inventory.
As if that wasn’t hard enough, railway cars—the primary transportation network for timber—have also stalled the supply chain, as they can’t transport enough supply to keep up with raging demand.
That’s not bad news. Strong demand means the timber industry can continue jacking up prices. But it’s certainly something investors should pay close attention to, as the market could become too frothy with the end result being a deflation in timber prices—and consequently lumber stocks.