This guy RBC Dominion Securities analyst Matthew McKellar said there are “reasons to be optimistic” in the North American paper and forest products sector, particularly for wood products companies.
“We expect that interest rates could move somewhat lower through 2024 and begin to catalyze somewhat stronger demand year-over-year, and we expect single-family starts (which consume 3 times as much wood products as multi-family) to be up mid-single-digits,” he said. “We expect R&R spending to remain strong relative to historical pre-COVID levels, supported by increased homeowner equity levels, a solid employment backdrop, and increased existing home sales, although we think spending could moderate somewhat year-overyear.”
In a report previewing 2024, Mr. McKellar updated his commodity price forecast, noting: “Compared to our previous forecast, we assume stronger near-term OSB prices, reflecting that while significant recent capacity additions should pressure prices, it will take some time for the incremental volumes to be felt as new capacity ramps up. We also revise our pulp price assumptions higher, reflecting pricing that strengthened through Q423, although we expect price momentum from here to be limited. We expect containerboard prices to push higher given price hikes announced for January 2024 by most of the top North American producers, but we think the magnitude of the increases will be less than announced given that industry operating rates remain soft.”
The analyst revealed four “favourite names” for Canadian stocks entering the new year. They are:
- Interfor Corp. (
, “outperform”) with a $30 target. The average on the Street is $28.20. - Doman Building Materials Group Ltd. (
, “outperform”) with a $10 target. Average: $9.17. - Canfor Corp. (
, “outperform”) with a $2 target, falling from $2.50 previously. Average: $23.40. - Cascades Inc. (
, “outperform”) with a $15 target. Average: $14.20.