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How much wood would a woodchuck buy if a woodchuck could buy wood?

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September 16, 2008 – Comments (7) | RELATED TICKERS: WY

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.

Deej 

7 Comments – Post Your Own

#1) On September 16, 2008 at 9:19 AM, dinodelaurentis (74.94) wrote:

i'm assuming a stomach capacity of 1.25 liters and a regurgetaion cycle of 20 minutes?

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#2) On September 16, 2008 at 10:28 AM, DemonDoug (73.55) wrote:

Oh man Deej, I dunno about this one.  Buying timber today is like buying fiber optics in 2001 - might be a good business but there is a lot more potential to the downside.  WY also makes things like screws and nuts too and I'm pretty sure that part of the business is contracting too.

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#3) On September 16, 2008 at 10:43 AM, columbia1 wrote:

Deej- I live in S.W. washington, in the middle of those Weyerhaeuser timberlands, It is costing more to harvest those trees than they are worth right not, But I do agree if Weyerhaeuser becomes a REIT it would help, they very seldom offer to sell their lands around here though(the unemployment rate for the loggers is thru the roof here in Cowlitz co.) Right now the only market worth while is Alder not Fir!!(that picture looks like the view from my front yard-fog and all)

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#4) On September 16, 2008 at 10:58 AM, columbia1 wrote:

BTW- if I was a wood chuck I would buy all the wood a wood chuck could buy,(it is going to be a really cold winter this year)

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#5) On September 16, 2008 at 11:15 AM, TMFDeej (99.32) wrote:

Thanks for the insight, columbia.  If the view from your front yard looks like that, I am extremely jealous.  What a beautiful shot.  I have a place in Medicine Bow National Forest in Wyoming and the darn pine beetles really wreaked havoc on the trees this year.

Deej

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#6) On September 16, 2008 at 11:55 AM, columbia1 wrote:

The fog has lifted since this morning

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#7) On September 16, 2008 at 12:08 PM, TMFDeej (99.32) wrote:

Awesome pic.  Thanks for sharing columbia.

Deej

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