The Rising Influence of Rising Affluence

[DewDiligence]

Great webcast on PCL. Is the reason why it would be the one stock you own if forced to choose due to long term global supply demand trends for saw timber? Or are they more related to company management and core competencies?

It’s a combination: i) valuation (see below); ii) increasing cash-flow from normalization of the US housing market (#msg-101175278), reduced supply from Canada due to insect damage, and growing exports to China; ii) a competent management team that has experienced virtually no turnover; and iv) safeness—barring some kind of global calamity, PCL’s trees will keep growing at 5-6% per annum, thereby adding to shareholder regardless of when management decides to harvest them.

My conservative assessment of the per-share value of PCL’s timberlands is in the low $50s, and PCL’s internal assessment is in the mid $60s (#msg-100490226). Thus, PCL represents a simple asset play based on buying shares at a discount to the NAV of the company’s timberlands. Moreover, while you wait for the NAV discount to narrow or disappear, you get a 4% dividend that is taxed as a long-term capital gain (due to a quirk in the US tax code). Further, PCL is not a “bond proxy” like some REITs insofar as I expect the dividend to be hiked substantially in the next few years due to the supply and demand issues cited in the NAREIT webcast.

What’s not to like?