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Ainsworth breaks downtrend, but struggles

Hey Lou,

Always looking for professional opinions. I've been told that Ainsworth Lumber could be in for a great recovery. They have sold a lot of their dead weight. Big player years ago. Is the paper world coming back? I know it will be in demand, very soon. Your opinion?

Paul

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Hi Paul,

Ainsworth Lumber Co. Ltd. is just concluding a restructuring that has seen the bondholders take control of the company. The deal has the bondholders controlling 96% of the company and shareholders holding 4% of the new shares.

The tale of woe at ANS is the story of an aggressive expansion that needed strong and sustained commodity prices to make the strategy work. The collapse of the U.S. housing market took the air out of the plan and left the company with $1B in debt.

The three-year chart shows a stock that was in a steady and sustained decline till April of 2009. ANS has broken the downtrend but is still struggling.



The three-month chart shows an advance off of support at $1.00 but the volume is inconsistent and makes me wonder if the advance is real.

An investment in Ainsworth Lumber is a call on a recovery in the housing industry which drives demand for the milled and engineered products that they make.

There have been some signs of life in the U.S. housing market, with June new home sales up 11%, but keep in mind that its an 11% rise from a low base.

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The restructuring of the company has it better positioned to move through the current economic environment, but until we see some growth in employment, the demand for new homes will be muted.

Watch for resistance at $1.40 and be aware of the thin volume that has been the norm during the August advance.

Happy Capitalism!

Have your own question for Lou? Send it in to lschizas@globeandmail.com.

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