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After Louisiana-Pacific's Wild Week, What Are Investors To Do With Building Products?

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After Louisiana-Pacific's Wild Week, What Are Investors To Do With Building Products?
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Top Performing Industries For November 28, 2016

Last Friday, December 5, research firm DA Davidson downgraded Louisiana-Pacific Corporation (NYSE: LPX) from a “Buy” to a “Neutral” rating.

A few days earlier, RBC Capital had done the same, changing its rating from a “Sector Perform” to an “Underperform,” setting a price target of $13.00 per share. That implies a downside potential of 22 percent from the current stock price of $16.85 per share (as of December 8).

The downgrades, and the stock’s general performance this year (down more than 9 percent year-to-date, after 3 years of great returns), have triggered an increasing short interest in the company. The current short interest ratio stands around 2.47 days.

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Despite the news, Louisiana-Pacific was up 8.58 percent on Monday, as Norbord's $667 million deal to buy Ainsworth Lumber could paint an encouraging picture for the industry’s future.

The Industry

As private (residential and non-residential) and public spending on construction continues to recuperate, the building materials industry seems poised to grow.

According to a report by Moody's Investors Services, the ascending volumes –- and the leverage that comes with them -- coupled with higher prices, should drive operating income up by more than 7 percent over the next 12 to 18 months.

Competitors And Peers

Weyerhaeuser Co (NYSE: WY), another forest products company with a much larger market capitalization than Louisiana-Pacific, has returned about 14.3 percent year-to-date, and currently trades around $36.11 per share.

Still, analysts expect it to continue to climb up to $39.00-$40.00 per share.

Another industry peer, Boise Cascade Co (NYSE: BCC), which has a market cap very close to Louisiana-Pacific, is also up, by 23.2 percent year-to-date.

Image credit: Juhan Sonin, Flickr

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