Buy Weyerhaeuser (WY) in my long-term Jubak Picks 50 portfolio

01/18/2012 1:21 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

I added Weyerhaeuser (WY) to my Jubak Picks 50 long-term portfolio http://jubakpicks.com// on Friday, January 13 (See my post http://jubakpicks.com/ on January 13 for all the changes to the portfolio.)

Why? Because as much as I’d hate to pick a precise month for the bottom in the real estate market, I think that we’re close enough to a bottom so I’m willing to put some money to work in the sector—if I get paid to wait for the precise turn. Weyerhaeuser converted to a real estate investment trust in 2010 (2.97% current dividend) so I’m getting paid a better than 10-year-Treasury-bond yield while I wait for a bottom in the second half of 2012 or sometime in 2013. And when the bottom comes Weyerhaeuser’s real estate sales on its 6.15 million acres of timberland and its concentration on products for the construction market give me plenty of leverage to the upside. About 40% of sales come from its wood products business, with about 70% of the products of that unit used in new residential construction. Weyerhaeuser Real Estate Company, 15% of sales, develops master communities, single-family houses, and residential lots.

With that business mix, as you’d expect, 2011 wasn’t the greatest year for Weyerhaeuser. The company is on track to earn 43 cents for the year (Weyerhaeuser reports fourth quarter earnings on February 3). That’s quite a come down from the $1.44 a share the company earned in 2006, but it’s quite a bit better than the $2.58 a share loss in 2010 or the $8.61 loss in 2008.

Weyerhaeuser does have one gem of a business that has kept on pulling in revenue and profits even while real estate and wood products have tumbled. The company’s cellulose fibers business (30% of sales), which produces absorbent pulp used in diapers and specialty pulp used in textiles, showed a 28% EBITDA (earnings before interest, taxes, depreciation and amortization) margin in 2010. Pricing and therefore margins in that business are likely to stay strong in 2012, Standard & Poor’s projects.

I think the stock is fairly valued in the short-term at roughly $20 a share, which is why I’m putting this in a long-term portfolio. The upside here will come from a recovery in the U.S. housing sector. Buy and hold—and collect that dividend--is an appropriate description of these shares.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Weyerhaeuser as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

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