04/16/2004 12:00 am EST


Steve Sjuggerud

Founding Editor, DailyWealth

Steve Sjuggerud considers timber one of the last cheap assets. He recently featured Rayonier in his True Wealth newsletter and still considers it a top value. He now adds a second timber playPotlatchin his more aggressive True Wealth Trader. Here are his reviews.

"Timber is one asset that is extraordinarily cheap right now. And after a ton of research, I discovered that the cheapest way to buy vast timberland assets at a huge discount was to buy stock in a small paper business that happens to own millions of acres of valuable timberland. Rayonier (RYN NYSE) used to be a paper company, until this year. Effective January 1, 2004, they converted into a timber real estate investment trust. The firm has committed to selling off 2%-4% of its two million-plus acres of timberland each year, in order to provide us with a stable dividend, currently in the 6% range. Its timberland is incredibly valuable, including a gold mine of developable land in Florida. Rayonier has a good deal of land that’s likely on its books at $750 an acre, that it may be able to turn around and sell for $50,000 per building lot. When you add up the timberland and the rest of their assets and subtract out the debts, I come up with a liquidation value of just under $3 billion dollars, or nearly $60 a share. At a current price near $40, I consider it a steal. We'll also collect 6% a year in dividends. Remember, trees don’t care about stock market manias, or bubbles, or crashes. They just keep on growing. Time to get in while the getting is good and cheap. Rayonier is an extraordinary value."

In his newly-launched, and more aggressive True Wealth Trader , he adds, "Like our recommendation for Rayonier, w e've found a similar way to profit from timber– Potlatch Corp. (PCH NYSE). Based in Spokane, WA, Potlatch is a timber products company with 1.5 million acres of timber in Idaho, Arkansas, and Minnesota. Our simple yardstick for valuing timber companies shows the value of the trees that Potlatch is sitting on. The ‘yardstick’ is the price-to-trees ratio, and it measures just what you think. Just as a price-to-earnings ratio is figured by dividing earnings into the market cap of a business, the price-to-trees ratio is figured by dividing the amount of trees (measured by acres) into the market cap of a business. With 1.5 million acres of timberland and a market cap of $1.2 billion, Potlatch has a p/t ratio of 810. Compare this with paper giant International Paper's p/t ratio of 2389, or Louisiana-Pacific's p/t ratio of 2043. Just like Rayonier, Potlatch gives us an opportunity to buy lots of timber on the cheap. Potlatch is everything we're looking for: cheap, unknown to the investing herd, and in a rising uptrend. It's time to buy the last cheap asset."

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