The new year is here, and while many are thinking about 2024, I’m already thinking about 2025. The market is still recovering, and we could still hit a mild recession. Because of this, there isn’t likely to be a huge rebound in things like the housing market in 2024.
That being said, 2025 will be a different story. That’s likely when we’ll experience a heavy increase in share prices for companies involved with the housing sector. Whether it’s building homes, selling them, or other opportunities in the sector, there’s likely to be a huge boost.
This is why there is one value stock I would pick up now, knowing it will blast off through this year and into 2025.
Canfor (TSX:CFP) is a lumber company trading at a huge discount compared to fair value. Analysts give it a consensus price target of $23.40 as of writing. That makes it about 35% below fair value at this point! And to be fair, it’s been for good reason.
The company saw a huge impact on its share price as higher interest rates led to lower demand for new housing starts and renovations. The growth we experienced from do-it-yourself projects in the pandemic came to all but a huge halt.
Therefore, if you’re looking for growth in dividends from Canfor stock, you’ll likely not see it in the near future — especially as Canfor stock doesn’t offer a dividend to begin with, though that’s not uncommon. The company is far too cyclical for that. Instead, it’s more likely the company will buy back shares in the near future — such as now, when shares are so low.
But it won’t last forever. As mentioned, the housing sector will certainly improve in 2024 and lead to a huge rebound likely in 2025. There’s likely to be a major boom as those who were waiting for lower interest rates and holding onto cash will suddenly need to make those renovations or make a move. Therefore, this stock looks to be at a huge discount, but what do analysts say?
When it comes to the lumber industry, Canfor stock remains an analyst favourite among the batch. The company managed to report earnings that while falling under estimates, did maintain that there would be growth in the near future.
Things should start to turn around early this year. That’s despite seeing wildfires destroy earnings last year, and lower lumber prices. Analysts believe that pulp prices hit their lowest level during the last earnings quarter. So, really, it’s now only up from here with a strong trajectory through 2024 and into 2025.
In particular, it’s not just housing being pointed to. Instead, consider that lower interest rates will lead to higher use of paper products as well, such as what will be needed for packing. Therefore, Canfor stock should also see an increase in lumber, as it meets demand in a future e-commerce boom.
Valuations remain quite low, and shares are still on the lower end compared to the last year. However, more growth is definitely set to come, with analysts seeing Canfor stock as potentially the best of the batch of lumber stocks.
So, while it’s undervalued by 35%, trades at just 3.73 times earnings, 0.39 times sales, and low amounts of debt, it looks like it’s only up from here for Canfor stock. So, pick up the value stock while it lasts!