Why Is Louisiana-Pacific Corporation (LPX) the Best Land and Timber Stock to Buy Right Now?

We recently compiled a list of the 10 Best Land and Timber Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Louisiana-Pacific Corporation (NYSE:LPX) stands against the other land and timber stocks.

The land and timber industry supports various sectors such as construction, furniture manufacturing, and paper production. The industry is forecasted to be worth $342.55 billion in 2024 and is projected to reach $464.94 billion by 2029, reflecting a healthy compound annual growth rate (CAGR) of 6.3%. In fact, The World Bank predicts that the push for net zero emissions by 2050 could quadruple global timber demand.

This growth is fueled by a rising preference for wooden buildings as compared to concrete buildings since wooden construction produces very little waste and saves time. Moreover, concerns regarding CO2 emissions by the construction industry, which make up 36% of total emissions globally, have led to the adoption of timber in place of steel and concrete. This is because timber's role as a low-carbon alternative in construction helps decarbonize the industry. Furthermore, wood's natural ability to absorb CO2 makes it a more sustainable solution for the construction industry.

In addition to construction, timber is also used for wood fuel and industrial purposes. Around 90% of wood is used for fuel in Africa, Asia, and South America primarily, while 90% of wood in North America and 80% in Europe is utilized for industrial purposes.

The skyrocketing demand for timber raises a critical question: how can we ensure a long-term supply? Unlike fossil fuels, trees are renewable, but their growth is slow and takes 30 to 100 years. Sustainable practices rely on establishing new plantations, but finding suitable land is becoming difficult due to competition from other uses. Currently, most timber comes from natural forests: softwoods in the north and hardwoods in the south. However, this reliance is unsustainable.

Although plantations make up only 3% of the world's forests, they already provide about 50-60% of timber production. With the increasing demand for timber comes the responsibility to practice environmental stewardship. According to the Managing Director of Forestry at Gresham House, relying on well-managed plantations is needed for a sustainable timber supply. Certification programs like the Forest Stewardship Council (FSC) can help ensure responsible forest management, protecting biodiversity and ecological functions.

Over 200 million hectares of global forests are FSC-certified, demonstrating a growing commitment to sustainability within the industry. This number is expected to reach 300 million hectares by 2026. Moreover, consumers' growing preference for certified wood products is driving the demand for responsibly sourced timber. Another solution for balancing the growing demand for timber products with sustainable forest management practices is investment in reforestation. Initiatives like the Bonn Challenge aim to restore 350 million hectares of degraded land by 2030.

Our Methodology

To shortlist the best land and timber stocks to buy according to hedge funds, we relied on Insider Monkey’s extensive database of 920 hedge funds as of Q1 2024. We picked the land and timber stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A construction worker standing on a rooftop with a toolbelt in hand, looking out at a new home development in the background.

Louisiana-Pacific Corporation (NYSE:LPX)

Number of Hedge Fund Holders: 48

Louisiana-Pacific Corporation (NYSE:LPX) is a leading supplier of building solutions across various markets. The company’s products cater to new home construction, repair and remodel projects, and even outdoor structures.

Louisiana-Pacific Corporation (NYSE:LPX) reported strong financial results for the first quarter of 2024, surpassing its performance from the same period in 2023. Net sales increased by 24% to $724 million, driven by strong growth in both the Siding segment (up 9% to $361 million) and the Oriented Strand Board (OSB) segment (up 65% to $313 million).

Profitability also saw a significant boost, with net profit margin rising by over 300% YoY. The company's net income increased by $85 million, reaching $108 million. This translates to a year-on-year rise of $1.19 per diluted share, bringing net income per share to $1.48. The company's cash flow from operations also improved dramatically, increasing by $223 million to $105 million in Q1 2024.

Analysts are optimistic about Louisiana-Pacific Corporation's (NYSE:LPX) future and have given the stock an average 12-month price target of $89.43. This represents a potential upside of 4.55% from the current price levels.

Here’s what Cooper Investors said about Louisiana-Pacific Corporation (NYSE:LPX) in its Q1 2024 investor letter:

“Highlights are often the private site tours we undertake with portfolio companies, two worth discussing on this trip were with Louisiana-Pacific Corporation (NYSE:LPX) and Eurofins Scientific (Eurofins). LP is a business we invested in mid-2023 and represents a Low-Risk Turnaround where the proposition is a commodity-to-specialty transformation story. The company is a leading manufacturer of wood-based building materials produced from its 24 mills and finishing plants, comprising ~4bn sq. ft of Oriented Strand Board (OSB) capacity and ~2bn sq. ft of siding capacity. Historically, OSB was the core output of LP but is a commoditised product in which LP is a price-taker. Group profits and losses swung around and led to highly volatile earnings over the years for a business at the whim of the underlying OSB price.

Siding on the other hand is a genuinely differentiated product that gives LP pricing power and generates consistent incremental margins of 25-30%. Made in the same mills as OSB using engineered wood flake and embossed with a grain finish (a processing marvel we’ve witnessed first-hand at a Source: Company Disclosures, Redburn Atlantic mill in Upper Michigan), LP ‘Smartside’ is a sustainable way to wrap homes in an attractive durable substrate that is gaining popularity among small and medium builders…” (Click here to read the full text)

Overall LPX ranks 1st on our list of the best land and timber stocks to buy. You can visit 10 Best Land and Timber Stocks to Buy According to Hedge Funds to see the other land and timber stocks that are on hedge funds’ radar. While we acknowledge the potential of LPX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LPX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.