United States President Donald Trump added new tariffs this week, specifically calling out Canadian lumber. The enforcement of a Section 232 action came as a huge shock to the sector. The move puts near-term uncertainty on the products, with the potential to depress shipments to the United States. This could be massive, given the cross-border dependency Canada has on our neighbours to the South.
This combo could therefore be quite hard on Canadian wood producers, with more volatility, weaker near-term earnings, guidance revisions, and a return to former tariff issues. The immediate effects are negative; however, long term, a few Canadian stocks could provide value. So, let’s look at what investors need to know not just in the near term, but medium and long term as well.
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WFG
Let’s look at one of the largest producers out there, West Fraser (TSX:WFG). This is a large, integrated supplier with exposure to lumber, Oriented Strand Board (OSB), and pulp. While it remains liquid and has flexible operations, its second quarter showed that it could be at risk from these new tariffs.
The second quarter saw sales come in at US$1.5 billion, with a net loss of $24 million. Its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) hit US$84 million, with lumber at just US$15 million. Again, its cash is solid at US$646 million, allowing it to repurchase about $450,000 shares year to date. Yet guidance has already been lowered.
Management lowered 2025 shipment ranges and reduced OSB shipment targets as demand is already easing. So these tariffs are likely to hit the Canadian stock even harder. All while capital expenditures remain heavy at US$400 to US$450 million. All considered, West Fraser has been one to keep on the watchlist, and remains so today.
SJ
Another option is Stella Jones (TSX:SJ), which offers a different product mix of pressure-treated wood, utility poles, and industrial wood products. Tariffs on lumber are therefore less direct for core markets, but the sector weakness could still hit the company in terms of pricing and demand for these products.
That being said, its financials look a lot healthier. It maintains a strong EBITDA at $189 million or an 18.3% margin. However, that doesn’t mean it’s perfect. Sales were down 1% from last year, with operating income at $155 million from $168 million in 2024. This led the Canadian stock to bring expected sales down to $3.5 billion in 2025 from $3.6 billion – again, influenced by the macroeconomic challenges.
There is a silver lining, however. The Canadian stock continues to buy back shares, as well as try and create growth through acquisitions. This has included the acquisition of Brooks Manufacturing in September for roughly US $140 million. If the deal is a good one, investors may still see growth despite all these tariff issues.
Bottom line
U.S. tariffs definitely hurt Canadians more than they help. However, they could also create opportunities if you invest in the right companies. Unfortunately, WFG looks as though it’s struggling even without the tariffs. SJ is as well, but is trying to create growth through smart investments. In any respect, I would simply add these to your watchlist for now rather than go all in on a dip.
