Seeking Alpha: Louisiana-Pacific Marking Time Ahead Of Closing Ainsworth

The U.S. housing market may not be back to business as usual, but business has gotten a lot better. A range of companies with exposure to residential building materials, including Headwaters (HW) and Universal Forest Products (UFPI), seen solid demand in recent quarters. Louisiana-Pacific (LPX) is having a little more difficult on the pricing and cost sides of things, but bringing Ainsworth (OTCPK:ANSBF) into the fold in 2014 should be a big help.

Louisiana-Pacific needs to execute better on costs and has to keep the momentum moving forward for products like SmartSide and engineered wood products. Provided that they execute on the opportunities that Ainsworth will bring, and that the U.S. housing recovery doesn't get knocked off stride, I continue to believe that Louisiana-Pacific is undervalued and should trade at $20 or higher.

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Louisiana-Pacific Marking Time Ahead Of Closing Ainsworth

Seeking Alpha: Improving Housing And A Major Deal Make Louisiana-Pacific Much More Interesting

The housing recovery trade seems to have hit a bit of a snag recently, as even hot trades like Home Depot (HD) and Mohawk (MHK) have cooled a bit recently. With mortgage rates heading higher and new construction activity still not that strong relatively to long-term averages, timber, lumber, and wood products companies have gotten dinged. While I had already been planning to write on Louisiana-Pacific (LPX) and point out that it seemed as though the market was pricing in too much skepticism about the OSB, siding, and engineered wood markets, the company did a deal that only makes the story more interesting.

In buying Canada's Ainsworth Lumber (ANSBF.OB), Louisiana-Pacific is not only adding capacity ahead of increased demand, but it is also improving its sales/margin mix, adding an Asian export business, and perhaps helping to quell fears that the industry will act irresponsibly with respect to capacity restarts/additions. While I'm actually surprised at how undervalued Louisiana-Pacific appears to be, it looks like there could be room here for 20% to 40% appreciation even after the strong positive reaction to the Ainsworth deal.

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Improving Housing And A Major Deal Make Louisiana-Pacific Much More Interesting