Pat McKeough responds to many requests from members of his Inner Circle for specific advice on stocks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. Recently we had a request from an Inner Circle member interested in forestry stocks. The specific question centered on Norbord, a leading maker of oriented strand board and other engineered wood products. Pat examines Norbord’s recent financial results—and its rising shares—and also looks at the pace of the U.S. housing recovery and how it will affect Norbord’s outlook. Q: Hi Pat: You recently gave an opinion on Deltic Timber. What is your opinion on Norbord Inc.? Thanks. A: Norbord Inc., (symbol NBD on Toronto; www.norbord.com), is one of the world’s largest producers of oriented strand board (OSB). The company can produce more than 5.1 billion square feet of OSB at 13 plants in North America and Europe. Brookfield Asset Management (Toronto symbol BAM) owns 52% of Norbord. OSB is an engineered wood-panel product that’s used as a plywood replacement in home construction and manufacturing. The company also produces particleboard, medium density fibreboard and other engineered wood products. In the three months ended June 30, 2013, Norbord’s revenue rose 34.2%, to $365 million from $272 million a year earlier. (All figures except share price and market cap in U.S. dollars.) Earnings jumped to $53 million, or $1.00 a share, from $6 million, or $0.14.
Resource stocks: High dividend depends on OSB market prices, company says
While earnings were higher in the second quarter, they were lower than the $67 million, or $1.26 a share, that the company earned in the first quarter. That’s because of a sharp decline in OSB prices, to as low as $313 per thousand square feet, after they had reached a nine-year high of $430 per thousand square feet in the first quarter. The company’s long-term debt of $434 million is a reasonable 27.1% of its market cap. It holds cash of $220 million, or $4.14 a share. Norbord began paying dividends with a quarterly payment of $0.60 a share in June 2013. That gives the stock a high 8.4% yield. However, the company has said it will continue with that high rate only as long as OSB markets remain strong. The shares are up 60% over the past year, although they are down from a high of $37.93 in March 2013. The fluctuations reflect changing expectations for new-home construction in the U.S. In the Inner Circle Q&A, Pat looks at the longer-term trend in housing markets. He also examines the outlook for OSB prices and the prospects for Norbord’s high dividend. He concludes with his clear buy-hold-sell advice on this stock. (Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.) COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members Forestry stocks have been plagued by a number of problems in recent years, including the housing crisis in the U.S. and declining sales of newsprint. Do you think forestry stocks are still a viable investment for Canadians? Have you had success with any forestry stocks recently?
