Looking for a sector that could benefit from a potential rebound in the housing market south of the border?
Wood products may just fit that bill, and Desjardins Securities Inc. analyst Pierre Lacroix Thursday upgraded a handful of names to reflect his view that profitability will get better heading into 2012.
"We believe that the investment outlook for wood products over the next two to three years is very compelling," he wrote in a note.
A number of these stocks have already seen a strong run-up. But Mr. Lacroix believes that lumber prices may encounter some softness in the near term, creating a buying opportunity further down the road.
He hiked his price forecast on West Fraster Timber Co. to $58 from $47.75, while raising his target on Canfor Corp. to $12.50 from $11.25 and on Norbord Inc. to $18 from $16.
Yes, the U.S. housing market has been in the dumpster. But sentiment for the wood products sector has been quite bullish thanks to stronger-than-expected repair and remodelling activity amid foreclosed home sales. Plus, Chinese lumber demand has been surging, currently representing about 5 per cent of North American demand, up fivefold in volume since 2007.
Mr. Lacroix argues that the Chinese situation, an expected modest improvement in U.S. end markets, and continued supply discipline among the consumers, should result in strong pricing for lumber and panels in 2011.