It’s not hard to find articles talking about Weyerhaeuser (WY) as some sort of “can’t miss” idea, since the company can theoretically just hold off on timber sales and let the trees grow. That misses a lot of key points, not the least of which is that silviculture is more complicated than just letting trees grow. The reality is that Weyerhaeuser also has to navigate volatile Wood Products prices, and has to do so with management’s hands at least partially tied by a strict capital allocation policy.
On top of that, Weyerhaeuser is a “neither fish nor fowl” stock that doesn’t really fit well into any particular bucket. It’s not a growth stock, it’s quite cyclical, and while it can generate significant supplemental dividends in the good times, it doesn’t offer the stability or predictability in distributions that most income investors want.
Between those challenges and recent weakness in wood product prices, I’m not surprised that the shares have underperformed the S&P 500 since my last update. I do think the shares are undervalued, but I’m worried that the company’s capital allocation policy is an impediment and this is really only a name for patient investors who can tolerate above-average volatility.
Read more here:
Weyerhaeuser Facing Weaker Prices, Limited Flexibility, And Mixed Appeal
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