Timber!

01/14/2005 12:00 am EST

Focus:

Jim Jubak

Founder and Editor, JubakPicks.com

"I think value stocks will outperform growth stocks in 2005," says Jim Jubak. "Within the value sector, I particularly like value-asset stocks." Here, the editor of "Jubak's Journal" and columnist for CNBC on MSN Money, explains why he sees value in timber.

Jubak remains bullish on two landholders in his "Jubak's Journal" portfolio. He explains, "St. Joe Company (JOE NYSE) owns about 850,000 acres of Florida land. The shares are up 83% since I added them to Jubak's Picks in 2003. I think the St. Joe is certainly worth holding, which is why I upped my target price to $84 a share. In addition, Tejon Ranch (TRC NYSE) owns 270,000 acres that start about 60 miles north of Los Angeles. Development has been held up by fights with regulators and negotiations with environmentalists to protect the most sensitive of these acres. I'm raising my target price for these shares to $45 by June 2005." Meanwhile, the advisor sees potential opportunity in two timber plays:

"Plum Creek Timber (PCL NYSE) has hugely ambitious plans for its real estate. The company figures that about 1.4 million of its 8.1 million acres are better suited for something other than timber. Of those 1.4 million acres, the company has targeted 150,000 acres for current sale for development as home and commercial sites. The current book value per share of $12 clearly undervalues its developable land, but there's some danger here in the very ambitiousness of Plum Creek's plans. The company wants to sell off half of those 1.4 million acres by the end of 2007. I just don't think that's possible, and there's a good likelihood that the company will have to scale back its plans, which would hurt the stock on Wall Street in the short run.

"Of course, in the long run any delay in selling the company's land just means that the company will receive a higher price for the acreage it does sell. To balance the risk of disappointment, investors are getting Plum Creek's land at a price of about $1,000 an acre. I'm going to hold off on adding this one to the portfolio until I see how the company's plans hold up as the year advances. Plum Creek is also a real estate investment trust and pays a dividend yield of 3.8%.

"Rayonier (RYN NYSE) is still very much a timber company-which is not a bad business to be in at all with net prices for timber climbing 18% in the Northwest and 12% in the Southeast in 2004. But to grow all those trees, the company owns 2.1 million acres of land that it has started to sell. Some of this-the land nearest Seattle and the land that runs along the Georgia and Florida coasts- is worth a lot more as sites for second homes, stores and office buildings, than it is as timber. (Which makes the book value of $16 a share a tad understated.)

"The company is currently selling 20,000 acres outside Savannah, Ga., and Fernandina Beach, Fla. At current prices, by buying the stock an investor gets the company's land at about $1,150 an acre. The company is due to report earnings on Jan. 25. Rayonier converted to a real estate investment trust in January 2004. The shares pay a dividend yield of 4.7%. I'm adding the shares to Jubak's Picks with a target price of $53 a share by June 2005."

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