One of the first things aday trader learns is how to locate the
A time-proven and popular method is to look at thestocks and
themes that are hot in the news. The trick, however, is not to
trade these hot stocks, but to look for similar companies or
The theory is that other stocks within the same industry or
themewill soon follow.
While this is a standard stock-locating procedure for day
traders, I like to apply it to the long term. As I've recently said
inreal estate is hot right now. Prices are climbing across the
globe and builders, real estateinvestment trusts and associated
businesses are riding thewave higher.
[Also read: "
Why This Little-Known Company Bought 16,000
So when I was looking for stocks surrounding this hot sector, I
realized building products would likely benefit from this boom. And
no product is more widely used than wood, when it comes to
This idea guided me to one of the world's largest lumber and
wood product companies,
Not only is Weyerhaeuser a leading timber company, but it's also
involved in real estate. In fact, the company closed on 764 new
homes during the second quarter of 2012 alone. Itsbacklog of sold,
but unclosed homes has ramped up more than 50% in the past year.
This is the kind of smartdiversification that distinguishes great
companies from the merely good ones.
After taking a quick look at the company's stock chart, I almost
fell out of my chair. Weyerhaeuser has been in a solid uptrend
since January 2012, when the price broke above the50-day moving
average . In fact, since this past August, the share price has
soared more than 50% to more than $30 in a steady climb
Take a look for yourself...
With this amazing performance and the underlying economic growth
drivers, I had to take a closer look at this company. Here's what I
Weyerhaeuser harvests more than 6 million acres of
wood-producing timberland.EBITDA for the timber business is
calculated on a per-acrebasis and the company's EBITDA comes in at
$80 per acre, beating its competitors
, at $56 per acre, and
Plum Creek Timber (
at $37 per acre.
After the stellar share performance in 2012, all eyes were on
the company'searnings released on Friday, Jan. 25. The earnings
estimates had been steadily rising during the past month, from 16
cents a share to the present 19 cents. It turned out the company
beat these estimates by alot -- posting earnings of 26 cents a
share in the fourth quarter of 2012, an incredible 116% increase
from the year-ago quarter.Revenue for 2012 came in at $7.1 billion,
a 14.5% increase from 2011.
Showing a vote of confidence, the company increased its
quarterlydividend from 15 cents to 17 cents a share during the
fourth quarter of 2012, creating ayield of a little more than
Risks to Consider:
Weyerhaeuser is very connected to theeconomy , namely the
building and real estate markets. I think the boom has started to
reignite in the global buildingmarket , but no one knows for
certain what the future holds.
Action to Take -->
I really like this company as a fundamental and momentum play at
the current level. My target price is $45 a share within the next