My wife and I built a home in the Lower Keys in 2010. Miss Irma decided to do a foot stomp on our place a week ago. And then spawned a little tornado that slammed something through the side of the house that looks like a 105 round went through it. Irma also denuded every deciduous tree of all its leaves and sent a salt-water storm surge over everything not built on reinforced concrete pillars. Then she stormed out, leaving mold and decay in the fetid September heat of tropical Florida. All in all, a very unruly young lady.
We will rebuild, of course, and our home will be better and stronger for it. It will take time, savings and something else: timber. Lots and lots of timber. Also lots of paper packaging for the batt insulation that is now drenched and matted.
Even before this terrible catalyst for more wood and paper products, I was a fan of the iShares Global Timber & Forestry ETF (WOOD.) It had already moved from 54 to 66 this year based upon the world’s appetite for timber and the Internet shopping giants’ need for cardboard and paper products. As the developing world develops, wood will be one of the primary resources that allows it to do so. As a renewable resource, wood has no equal.
In addition, the turn from brick-and-mortar retail to the convenience of Internet shopping means exponentially higher use of cardboard and other paper products.
The additional catalyst I see right now is the rebuilding that will take place in the US after the dreadful fires out West and hurricanes Harvey and Irma in Texas and the Southeast.
The devastation is horrific but the human spirit is indomitable. We will all rebuild. Sad as it is to consider, this means an actual boost to the economy. The headlines always speak of the cost of a hurricane as if that were the end of the story. In fact there is another side. People will replace appliances, carpeting and broken windows. They will buy a different car or boat if they can afford to. And they will buy timber. Lots of timber, whether it was lost to fire, tornado, flooding or the wind and flood damage from hurricanes.
WOOD is basically a play on the world’s premier renewable resource. In many places in this world, timber cuts are not being replanted. Here in North America, the forest management companies understand just how insanely stupid it is to destroy something that needs only water, soil, sunshine and time to renew itself – and then not replant. No timber company in their right mind would clear-cut land these days. A timber harvest can be a continuous harvest forever if done in an intelligent manner. We are already a major player in the export/lumber business & it will only get bigger.
I would venture to say that between natural gas exports and timber exports the economies of the U.S. as well as that of our northern neighbor have a “prop” under our economic well-being that will last well into this and possibly the next century. When those foolish nations that clear-cut their forests without re-seeding need wood to build with, they will turn to those who have engaged in intelligent forest management. The beneficiaries will be the U.S. and Canada as well as some Scandinavian and other European countries with a few strong companies in some South American and Asian nations as well.
Even absent a catalyst like this, the foreign holdings, particularly in emerging markets, will grow and develop as their national economies grow. And the packaging companies in WOOD will grow as our online shopping grows. The extra impetus of Americans and our Mexican and Caribbean neighbors rebuilding our homes and our lives makes a collection of fine companies such as those comprising the WOOD ETF even more timely.
The biggest purchaser of wood, wood chips, fiber, etc.? China. You want to make an omelette, you need to break some eggs. You need to build a nation, you need some wood and wood products.
You could, of course, buy a particular company like one of the Canadian or U.S. giants. For instance, we have recommended and owned in the past, Weyerhaeuser (WY), the huge forest products and paper company. I last owned it when housing starts were moving toward record highs. I also found/find it amusing that the much-ballyhooed “paperless society” spawned by the Computer Age failed to materialize -- aren't we using more now than ever before? In addition, companies like Weyerhaeuser and its top competitors are now using technology to deliver the same product with higher margins, stressing R&D, and bringing down the number of vendors used. This brings down reject rates and machine downtime, lowers service calls, and capitalizes on their known strengths and deep pockets in research and development.
If I were only looking at the catalyst of the recent fires and hurricanes, I might consider buying one of the American firms like Weyerhaeuser. But while that may be an immediate catalyst I tend to seek long-term demographic and economically successful opportunities. For that reason I have selected an ETF that is global in scope, though its greatest concentration of assets is North American.
The largest holdings in WOOD include Canada’s West Fraser Timber, Rayonier (big in Florida), Weyerhaeuser and Potlach. The biggest part of the portfolio is North American but there is a healthy helping of companies in Europe and, to a lesser degree, Latin America and Asia.
This isn’t a difficult business to understand. Cut timber. Replace cut timber. Do it on an every-day basis so there are always trees growing into adulthood as others are reaching “senior” status. Protect from insects and disease. Learn more about the best soils and the optimum spacing for proper sunshine.
I like easy-to-understand businesses. And I especially like the idea of getting back, in the form of dividends and capital gains, some of the money I now must spend on all that timber and insulation I will have to buy!
Disclaimer:
I own shares of WOOD. Do your due diligence! What's right for me may not be right for you; what's right for you may not be right for me.
Past performance is no guarantee of future results. Rather an obvious statement, but too many people look only at past performance instead of seeking the alpha that comes from solid research and due diligence.
