BC Business
The trade-related selloff of WFG shares has analysts predicting a 12-month upside north of 50 percent
The stock: Among investing legend Warren Buffett’s famous quips is the admonition “to be fearful when others are greedy and to be greedy only when others are fearful.” Well, the markets are in fear mode right now. Sectors exposed to the Trump administration’s tariff assault have plummeted over the past week, none more than forest products. Canadian producers now face a blanket 25-percent tariff on top of existing softwood lumber duties. The contrarian thing to do, then, would be to pick up a high-quality stock like West Fraser Timber Co. (TSX:WFG) on the cheap and wait for things to sort themselves out.
The drivers: In the space of a few days, the U.S. Department of Commerce has come out with new, stiffer preliminary anti-dumping duties, all imports from Canada have been slapped with a 25-percent tariff and President Trump signed an executive order authorizing an investigation on national security grounds aimed at increasing American self-sufficiency in timber, lumber and their derivative products. The combined weight of U.S. trade action “could put more pressure on the Canadian lumber industry than it has ever faced,” Scotia Capital analyst Ben Isaacson speculated in a note Monday.
But there are reasons to believe Vancouver-based West Fraser, the world’s largest lumber and oriented strand board producer, can weather this storm. Trade barriers are nothing new in the forest products sector. Indeed, Canadian producers routinely put up cash deposits with the Commerce Department that are partially returned or added to depending on further adjudication. Decades of trade strife have also seen West Fraser push more than half of its production outside Canada, especially to the southern pine belt in the U.S. which could potentially benefit from tariffs.
Further, the demand for wood products for new housing and home renovations never really goes away; it just gets postponed. And with the rebuilding effort required following the recent fires in Los Angeles, probably not for long.
West Fraser stock closed at $109.89 on the Toronto Stock Exchange Tuesday (March 4), down 3.2 percent over the past year and 12.1 percent year to date. But its five-year trajectory, for those tuning out the immediate noise, is still upward 137.6 percent.
Word on the street: Though Morningstar called WFG’s recently released fourth-quarter results “underwhelming,” RBC Dominion Securities analyst Matthew McKellar maintained his “outperform” rating and US$117 ($170 CAD) price target in the midst of the tariff row this week. That implies a 12-month upside of more than 50 percent. “We expect West Fraser to continue consolidating the North American market while driving production costs lower,” he wrote, while benefiting from “growing end markets.”
Coming and going: Vancouver-based Equinox Gold Corp. (TSX:EQX) reached agreement in late February to take over crosstown counterpart Calibre Mining Corp. (TSX:CXB) in an all-share deal valued at $2.56 billion. Calibre CEO Darren Hall will join the combined company as president and chief operating officer while Equinox CEO Greg Smith retains his title. The deal is expected to close in the second quarter.