Canfor is a pure-play for me on the price of Lumber. The best vehicle I can find to play an inevitable lumber bull market. Right now the stocks are all in the gutter, and Canfor provides a combination of; downside mitigation through being a major, its majority lumber (rather than being lumped with timberlands, OSB etc), the balance sheet is clean, and they have diverisifed operations outside of Canada. Canfor did have the majority of its mills inside Canada only a decade or two ago but due to levies (tariffs) from the US on Canadian lumber and domestic reglations in BC, its made no economic sense to invest in BC. Hence the moves down to US South (USS) and investing in Swedish mills. Canfor has transformed itself into more of a global player now with a diverisfied geography mix. WFG is pricier on book value and has OSB division, IFP has a monster debt load overhanging it, although the debt is structured nice, I just prefer the clean profile of CFP. And the smaller players like GFP an WEF, well, I doubt they'd be able to last long in a pro-longed bear market which we are seeing. So Canfor it is. The only downside to Canfor really is the majority owner of JimBob Pattison. Although not much of a downer, you do have controlling shareholder risk and he did try to steal CFP in the last bear market in 2019 for 16 a share. The stock recovered well in H2 2020, 2021 with stupdendous cash flows.
Essentially, the lumber mills are the oil refining equivilant of the wood world. Fixed cost basis and have to operate to stay relevant. They can of course curtail production and cut shifts, but the mills still need to operate so they cant really run them too dry, much like an oil refinery. So of course during a demand surge you will see curtailemtns roll-off, and you will see more shifts. But to build a mill takes a number of years and 400-500mm in upfront capital. So supply isnt very elastic in that sense.
In terms of portfolio positioning, this could be a large position given its trading 0.5x book and is a major player in its sector in a beaten down market. Downside is mitigated unless a nuclear war happens or we enter a deep depression where demand for lumber just never comes back and the industry just keeps curtailing. Upside is maybe a potential 3x to 1.5x book in an up-cycle as FCF returns and a higher multiple is warranted.