O'Keefe Stevens Advisory, Inc. on Weyerhaeuser Company
Thesis
The adviser maintains that softwood lumber may be nearing the end of a multi-year downturn, positioning Weyerhaeuser to benefit from a cyclical recovery. Mortgage rates above 7% and weak new-home construction are suppressing housing demand and lumber prices today. Lumber futures fell 12.6% during the quarter, keeping sector expectations depressed. Because the lumber supply chain is lean, even a modest demand recovery could produce a material price response. The managers explicitly caution that a recovery in demand is not guaranteed.
“Should demand recover on the margin, lumber prices could increase materially as every part of the supply chain is lean today, although there is no assurance that demand will recover.”
Key risks
- Mortgage rates near multi-decade highs are weighing on construction activity.
- Housing demand may fail to recover.
- Lumber prices have continued falling, including a 12.6% futures decline during Q3.