Plum Creek: Timber Talk

12/11/2013 8:00 am EST

Focus: STOCKS

Paul McWilliams often addresses questions from readers of his Next Inning newsletter; here, a reader asks for an update on a previously-recommended position in timber stock.

Plum Creek Timber (PCL) has topped expectations regularly this year, but guided below expectations for the December ending quarter. This also caused analysts to lower estimates for the full 2014 year.

The company also floated a secondary offering that closed in early November. There they sold 12.1M shares at $45, and provided bankers with 1.8M additional shares that can be sold in an over-allotment.

The money raised will go to pay off nearly $300M in debt and buy new timber land. By implication, the latter could be construed, by some investors, as added risk.

I've followed PCL for a very long time and not only like its business model and execution, but also, the idea that it provides me with, at least somewhat of an inflation hedge.

The last I checked, it is the largest private-for-profit landowner in North America, and knows, very well, how to manage timber assets and leverage parcels of land it gets, with timber assets for other purposes.

Back in October 2010, I suggested patiently waiting for opportunities to buy below $36. PCL cooperated on a few occasions, but was trading solidly in the low $40s by the spring of 2011.

In March 2011, I increased my accumulation price range to run from $37 to $38. PCL dipped into that range on a number of occasions in 2011 and 2012, hitting a low in October 2011 of $33.02, and a low in June 2012 of $35.43.

When I last discussed PCL, in late October 2012, I forecasted an uptick in construction activity and raised my accumulation target to $39 or less. As it turned out, I was right about construction activity. PCL was trading in the low to mid-$40s in October 2012 and never made the dip to $39.

Personally, I view PCL as a very long-term holding (maybe a forever holding), and as such, I think it merits consideration at the current price.

Of course, that comes with the implication that I would set a plan to accumulate shares over time on weakness and participate in the company's dividend reinvestment program. The stock currently yields 3.97%.

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