The Top 5 Canadian Lumber Stocks to Buy in February 2023

Posted on February 8, 2023 by Dan Kent

You could say that lumber is one of the backbones of the Canadian economy.

Lumber isn’t just tied to the housing market. The sector touches almost every area of the country. The Maritimes has a vibrant lumber industry, thanks to lush forests in rural New Brunswick.

Ontario and Quebec have seemingly limitless forests north of major cities. Western Canada also has huge pockets of lumber, with the sector being especially valuable to British Columbia and Alberta. 

According to Natural Resources Canada, there were more than 345,000 people either directly or indirectly employed by the Canadian lumber industry in 2021. Collectively, these folks were paid approximately $11 billion in wages. 

Lumber prices have been extremely volatile

Canadian lumber stocks have made international headlines over the last couple years as the underlying commodity has spiked in price several times. After predictably dipping as the pandemic started, lumber prices first spiked to more than US$900 in July, 2020. They spiked again in 2021, hitting a high of more than US$1500 and again in 2022, although the most recent spike only peaked at around US$1250. 

In early 2023, the current price of a futures contract is US$362, making today a great time to get into Canadian lumber stocks. The time to buy is when lumber is low, not high.

What are the best Canadian lumber stocks?

  • West Fraser Timber (TSE:WFG)
  • Canfor Corporation (TSE:CFP)
  • Western Forest Products (TSE:WEF)
  • Interfor Corp (TSE:IFP)
  • Stella Jones (TSE:SJ)

West Fraser Timber (TSE:WFG)

West Fraser

Let’s start with West Fraser Timber (TSX:WFG), one of the largest Canadian lumber stocks with a market cap of more than $8.4 billion. It is also North America’s largest lumber producer, owning 10% of a fragmented market. It is diversified into lumber, engineered wood products (EWP), pulp & paper, and European divisions. 

West Fraser has been an excellent compounder of value over the long-term. From 2013 to 2022 shares increased more than 150%, plus the company paid a consistent dividend.

That makes it one of the best performing Canadian lumber stocks during that period.

West Fraser has consistently grown book value and earnings per share too. Book value increased from US$1.5 billion in 2012 to more than US$7.5 billion today. Earnings per share have increased from $0.90 per share a decade ago to more than US$27 per share in 2021. Note that analysts believe the company’s earnings will decline to US$8 per share in 2023, which is still an attractive forward valuation on a stock currently trading on the TSX for approximately $100. 

The company also has a pristine balance sheet which includes a nearly US$1.5 billion cash balance versus debt of just US$500 million. It’s well positioned if 2023 is bad for the housing market. 

Canfor Corporation (TSE:CFP)

Canfor

Perhaps the most interesting thing about Canfor (TSX:CFP) is its largest shareholder. Legendary investor Jim Pattison owns 52% of this Canadian lumber stock. It’s good to have investing royalty on your side.

Canfor is a diversified operation with 38 sawmills, 4 pulp & paper mills and 16 plants dedicated to value added activities -- like manufacturing parts for modular homes or wood chips. It's also in the newsprint business.  

Despite the company making serious progress, shares are flat over the last decade. This makes the stock an excellent buy today as the market hasn’t caught up with the company’s improved fundamentals. For example, Canfor had a book value of approximately $9 per share at the end of 2012. These days, book value is just over $40 per share. Canfor’s balance sheet is also in great shape with $1.6 billion in cash and just $300 million in debt. 

Earnings have also exploded over the last decade, increasing from $0.18 per share in 2012 to $10.74 per share in 2021.Analysts expect earnings to decline sharply in 2023, but the company is still projected to earn $1.84 per share this year. That puts shares at just 11 times forward earnings at the time of writing.

Western Forest Products (TSE:WEF)

Western Forest Products

Western Forest Products (TSX:WEF) is the smallest Canadian lumber stock on this list. It has a market cap of just $360 million, a fraction of the size of other producers. This small size makes it an ideal acquisition target.

Its size isn’t the only reason why I believe Western Forest could be acquired soon. Shares have also underperformed lately, falling from a high of nearly $3 each in 2018 to just $1.14 at the time of writing.

It’s always a good idea to buy when assets are depressed. Analysts agree the stock is depressed too; they have a target price of $1.60. That's upside potential of nearly 40%. 

The company has assets along the Pacific coast, with sawmills and remanufacturing facilities located in B.C. and Washington State. These assets would make a great addition for most Canadian lumber companies since they're closest to Asia -- a major export market. 

Western Forest isn’t as cash rich as many other Canadian lumber stocks since it’s currently digesting an acquisition of its own, which was completed in September, 2022. But it still trades at a steep discount of approximately 50% of its stated book value and shares are at about 8x 2023's earnings estimates. Cheap stocks attract suitors. They also protect on the downside.

Interfor Corp (TSE:IFP)

Interfor

What I especially like about Interfor Corporation (TSX:IFP) is this Canadian lumber stock is a pure play lumber producer. It doesn’t dabble in the value added product space. 

Interfor has been around for a long time, operating since 1980. More recently it has been a growth machine, increasing its top line from $850 million in 2012 to more than $4.4 billion over the last twelve months.

Earnings per share also saw similar growth, soaring from a loss of 17 cents per share a decade ago to a profit of $13 per share over its last year of operations. Not bad for a stock trading at $21 per share as I write this.

Analysts project earnings will fall pretty significantly in 2023, coming in at just north of $3 per share. That puts the stock at less than seven times earnings, but earnings could easily be higher if the overall lumber market recovers.

Canfor is a consistently excellent operator. It has increased lumber production by an average of 12% annually since 2012. It is a diversified operator with assets in B.C., Ontario, Quebec, and eight U.S. states. U.S. assets are important, since they're not subject to tariffs. The company's nearly 5 billion board feet of annual capacity also put it in the top four producers in North America. 

Stella Jones (TSE:SJ)

Stella Jones dividend

Stella Jones (TSX:SJ) is my favorite Canadian lumber stock for one simple reason. It’s not really a lumber stock.

Let me explain. Stella Jones is a producer of utility poles, railroad ties, and residential lumber products. These areas are much more consistent than the boom and bust cycles that typically plague the lumber industry. Railway ties are not linked to the Canadian housing market.

Stella Jones has increased its revenue by more than 400% over the last decade, boosting the top line from $717 million in 2012 to more than $3 billion in 2022. This growth rate was consistent, too, with the top line increasing each and every year.

Earnings also chugged higher, increasing from $1.13 to $3.62 per share in the same time frame. And unlike every other Canadian lumber stock on this list, the company’s earnings are projected to increase in 2023 to $3.93 per share. That gives the stock a more expensive P/E ratio than its peers, but it’s well worth it for such consistent results. 

The company has more than 40 different production facilities spread across North America, further illustrating how diverse its customer base is. It also has the ability to make future acquisitions to grow the company, particularly in the utility pole and residential lumber space.

Finally, Stella Jones pays a consistently rising dividend. The current payout is $0.80 per share, good enough for a mid 1% yield. The dividend has increased by an average of 14% per year since 2015, and the payout is still well within the target of under 30% of earnings. Its consistent dividend growth makes Stella Jones a member of the Canadian dividend aristocrat club.

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post. Stocktrades Ltd will run advertisements on our posts. These advertisements do not represent an endorsement by us.

Dan Kent

About the author

An active dividend and growth investor, Dan has been involved with the website since its inception. He is primarily a researcher and writer here at Stocktrades.ca, and his pieces have numerous mentions on the Globe and Mail, Forbes, Winnipeg Free Press, and other high authority financial websites. He has become an authority figure in the Canadian finance niche, primarily due to his attention to detail and overall dedication to achieving the highest returns on his investments. Investing on his own since he was 19 years old, Dan has compiled the experience and knowledge needed to be successful in the world of self-directed investing, and is always happy to bring that knowledge to Stocktrades.ca readers and any other publications that give him the opportunity to write. He has completed the Canadian Securities Course, manages his TFSA, RRSPs and a LIRA at Qtrade, and has compiled a real estate portfolio of his primary residence and 2 rental properties, all before his 30th birthday.