The forestry sector is one I have steered clear of in recent years for a number of reasons. In general, my broad outlook on this sector remains unchanged. I see too much volatility with respect to the core drivers of the lumber and pulp and paper businesses. Therefore, I stand by my assessment that any such high-beta play is imprudent at this point in the economic cycle.
That said, assessing companies like Canfor Corporation (TSX:CFP) in times like these is a good thing to do periodically; In this article, I am going to discuss why Canfor is on my watch list, but not my shopping list, now.
Canfor’s stock price dropped dramatically since the beginning of the year, following a rejection of Jim Pattison’s takeover offer of $16/share. Now having rebounded from the ~ 6$/share level, many investors are left wondering: was Pattison right about Canfor’s long-term outlook or not?
Similar to the Cineplex – Cineworld deal that fell apart, I expect we will continue to see less in the way of completed acquisitions in the near-term, as paying an acquisitions premium will not be viewed as anything less than idiotic by most investors right now.
With a takeover premium off the table, I expect investors will shift their focus to data on U.S. construction and home sales. Such data has come in increasingly bleak of late, at levels we have not seen since 2010 following the financial crisis.
There are not a lot of positive drivers with this stock right now. As such, I would advise investors stay on the sidelines and watch Canfor from afar, for now.
Invest wisely, my friends.
