How much wood would a woodchuck buy if a woodchuck could buy wood?
Wow, what a day in the markets yesterday. I picked the wrong week to stop sniffing model airplane glue.
Question: How much wood would a woodchuck buy if a woodchuck could buy wood?
Answer: How about 5.7 million acres of it for less than book value.
This is how much Weyerhaeuser (WY), the United States' second largest owner of timberland, owns. Obviously, demand for wood is off a little bit during the largest housing bust since the dark ages. This has hammered Weyerhaeuser's stock, which is down $77 in December to the $54 and change that it sits at today. Analysts estimate that the company's timberland is currently worth close to $67 per share. Even if the housing down turn drags on for a loooooooooooooong time and that estimate is slightly optimistic, WY appears to be trading at quite a discount to its book value right now.
By purchasing Weyerhaeuser at this level, one is getting its valuable timberland at less than market value and they get paid a 4.3% dividend to wait until things turn around, which may be sooner than Mr. Market thinks if Russia has anything to say about it. I'm sure that you're thinking what the heck does Russia have to do with a U.S. timber company. Well, I'll tell you. On January 1st, Russia is scheduled to raise its export tariff on wood from its current 25% level to a whopping 80%! Guess who Russia's biggest customer for this wood is...China. If growth continues at all in China, and I suspect it will with the Chinese government planning to crank up its spending on infrastructure projects, the Chinese may shift much off their demand for timber from Russia to the good old U.S. of A.
Add to this the embedded call option that Weyerhaeuser may convert to an even higher dividend paying REIT in 2010 and this company looks pretty attractive right now. I added shares of this company to my CAPS portfolio yesterday.