The Toronto Stock Exchange is an excellent investment ground for all types of investors. Energy and finance are the heavyweight sectors, although stocks in the basic materials sector can deliver healthy returns, especially for long-term investors.
Top timber and forest stocks like Stella-Jones (TSX:SJ) and Acadian Timber (TSX:ADN) are screaming buys today. Thus far, in 2023, the stocks have outperformed the broader market year to date. Stella Jones (+55.66% year to date), in particular, is soaring amid a challenging operating environment.
Image source: Getty Images
Robust organic sales growth
Stella-Jones provides pressure-treated wood products, an essential element in the physical infrastructure of North America’s economy. This Saint Laurent-based firm has been operating in the lumber and wood production industry for 31 years. At $74.59 per share, the mid-cap stock pays a 1.71% dividend.
The $4.32 billion company has wood-treating facilities in Canada (16) and the United States (27) and pool-treating facilities (10 in Canada and 16 across the border). Stella-Jones is a well-known provider of railway ties, utility poles, and residential lumber. The ever-increasing utility and rail infrastructure investments in North America ensure a long growth runway.
Stella-Jones also grew in size in the last 20 years through aggressive acquisitions and is pursuing acquisition opportunities in critical areas such as procurement and logistics. Its customer base includes North America’s prominent electrical utilities and telecommunication companies needing wood utility poles.
The company lists its consistent access to wood fibre, expansive inventory, extensive networks (manufacturing, procurement, and transportation), and diversified customer base as competitive strengths. However, utility pole maintenance, fire-resistant wrap utility poles, broadband and electric vehicle expansions are growth drivers.
Stella-Jones’s financial performance in the first half of 2023 indicates business stability. Total sales and net income increased 7.9% and 14.3% year over year to $1.68 billion and $160 million. For 2023 to 2025, the target is a 15% compound annual growth rate (CAGR) for utility poles and 16% earnings before interest, taxes, depreciation, and amortization growth.
According to management, the company’s annual capital expenditure program ($65 to $75 million annually) will expand over the next few years to meet the anticipated growth in the utility poles product category.
Long-term demand
Acadian Timber Acadian sells wood products to a broad customer base. Softwood sawlogs deliver the highest sales, while hardwood sawlogs, pulpwood (hardwood and softwood) and biomass by-products diversify sales. The $281.97 million company manages vast freehold timberlands (approximately 1.1 million acres) and provides timber services to around 1.3 million acres of Crown-licensed timberlands.
The business strategy is to maximize cash flows from timberland assets through sustainable forest management and other land use activities. In the third quarter (Q3) of 2023, sales and net income rose 18.9% and 32.6% to $272.9 million and $6.4 million versus Q3 2022.
Acadian Timber banks on the stability of the northeastern forestry sector. The company maintains a positive outlook due to the long-term demand for new homes and repair and remodelling activities. At $16.44 per share (+5.7% year to date), the timber stock pays a lucrative 7.06% dividend.
Bright prospects
Stella-Jones and Acadian Timber are good long-term plays. You can earn two ways: price appreciation and dividends. Also, the prospects for the forestry and logging market are bright. The demand for construction and industrial applications is growing.
