File photo of a large stockpile of wood in B.C.The Canadian Press
Globe editors have posted this research report with permission of Dundee Capital Markets. This should not be construed as an endorsement of the report's recommendations. For more on The Globe's disclaimers please read here. The following is excerpted from the report:
We are initiating coverage of lumber companies Canfor, West Fraser and International Forest Products with a buy recommendation. We also are initiating coverage of Canfor Pulp, Domtar and Resolute Forest Products.
We believe we are in the early stages of an extended recovery in U.S. Housing. Housing starts averaged 930,000 over the past 15 months, well below the demographically sustainable 1.4mm to 1.5mm.
A key point is that U.S. lumber prices in 2013 were slightly higher than in 2005. Considering that 2013 housing starts were 926,000 and 2005 housing starts were 2.1mm augurs well for lumber prices longer term, especially as U.S. housing recovers.
In terms of earnings outlook, we are generally in line with expectations save for this quarter. We believe the losses associated with the bad weather could be more severe than expected. We are slightly above expectations for the balance of 2014 and 2015.
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