The Stock
TimberWest Forest Corp.
Yesterday's closing price
$4.71
Trend
Long overshadowed by highly capitalized and explosive mining stocks, forestry stocks had become a weak sister of the materials sector. Trade riffs, fickle economics, environmental friction, and global competition made the forestry products sector frail long before the financial meltdown sent the critical U.S. housing market into freefall.
But the past year has seen a surprising renaissance for timber and pulp stocks. A combination of supply factors has ignited bullish forestry product commodity price trends as lumber and pulp prices have risen substantially since the market bottom. The Random Lengths framing lumber composite index is up 69 per cent in the past year, while pulp markets (northern bleached softwood kraft) have added another 9 per cent to an ascending price trend in the past two months.
The iShares Global Timber & Forestry Index Exchange-Traded Fund and the Claymore Beacon Global Timber Index ETF , funds with holdings of major global forestry stocks, hit 52-week highs last week as both have rallied 22-per-cent higher since early February. Canadian forest product stocks have been market leaders, too. Seven forestry stocks hit new highs on the TSX last week, including Canfor Corp., West Fraser Timber Co., Domtar Canada Paper, and Ainsworth Lumber Co., a stock that has leapt over 50 per cent in the past two weeks of trading.
The Trade
Not every Canadian forestry stock has been brimming. TimberWest Forest Corp. has retreated significantly in the past month and stands out as the underperforming member in the industry. The company's fortunes would improve with a rebound in the U.S. housing market - something that is far from assured - but from a technical perspective should currently interest investors. The unit price dropped last week to an important support level at the 40-week moving average trend line. High trading volume on Wednesday helped lift the units off the trend line, although they finished the week basically unchanged from the previous week.
Although the units are an unusual "stapled" composite of common equity stock and corporate debt note with distributions, currently deferred, that are correspondingly interest-rate sensitive, this technical market timing focuses on the unit price and volume signals the market is giving about TimberWest. In the context of a performing sector, current support for this Stock Trends Weak Bullish unit signals a good entry point for investors anticipating a TimberWest recovery.
The Upside
The unit price reached a peak of $5.98 a month ago before it retreated. The $6 area proved to be a brief support area during TimberWest's unit price collapse of 2008, and prior to the November, 2008, announcement of distribution deferral. Investors trading a rally from trend-line support can look to this $6 objective, a 30-per-cent move. Long-term investors may see the bullish trend extend beyond resistance at the March peak.
The Downside
TimberWest's performance, and that of the entire forestry products sector, will be adversely affected by any snuffing out of life in the U.S. housing recovery - as fragile and uncertain as it may be. However, the trend support at $4.40 is the key driver of this trade, so a drop below will be an early mark of concern. An exit stop price at $4.25, a rallying point early this year, could be the downside protection.
Skot Kortje