Speculator’s Corner: Does Money Grow On Trees?

| March 4, 2013 | 0 Comments

Unless you’ve been living under a rock, you’ve already heard about the recovery in the US housing market.

Just last week we found out new home sales took off like a rocket ship in January.  In fact, they jumped nearly 16% to a rate of 437,000 new homes per year.  It was the largest monthly percentage gain in 20 years and the fastest pace since July of 2008.

In short, the housing market is on the upswing. 

That’s great news for the economy and job creation in particular.  It’s estimated that homebuilders will need to add 20,000 new workers every month in order to keep pace with demand.

Many savvy investors have reaped huge rewards by front running the recovery in homebuilder stocks over the last year.  And there are still profits to be had by investing in homebuilders.

But homebuilders aren’t the only way to speculate on the explosion of new home sales.

The timber industry’s largest end market is new home construction.  A typical US home uses about 16,000 board feet of lumber.  So, the resurgence of the US housing market is a welcome sign for the industry.

Obviously, the demand for lumber should mirror the upswing in new home construction as well.  In fact, lumber mills are already operating at the fastest pace in four years.  And many have plans to restart capacity that has been sitting idle for years.

At this point, demand is growing faster than supply.  Prices for logs and cut lumber are on the upswing and are expected to continue rising throughout 2013.

And this is only the tip of the iceberg… 

At the current pace of 437,000 new home sales per year, we’re simply not building enough new homes to keep pace with demographic trends.  We need to be building closer to 1 million new homes per year.

In other words, the pace of new homes sales will likely double from where it is today.  And so will the amount of lumber needed to build them!

That’s great news for Weyerhaeuser (WY) the largest US timber company. 

Despite these bullish fundamentals, WY has pulled back more than 6% since reporting their latest quarterly earnings.  The pullback pushed the stock back to a technical support of the uptrend.

This looks like a great time to speculate on WY resuming its bullish uptrend.  Take a look at the WY April 2013 $31 calls for around 45 cents.

Good Investing,

Corey Williams

Tags: , , ,

Category: Speculator's Corner

About the Author ()

A former banking executive, Corey Williams is the Chief Options Strategist and co-editor of our well-known daily newsletter, Options Trading Research. Corey’s extensive experience with options goes all the way back to his days in corporate finance. It was this decade in banking where Corey discovered the most important skill an options trader can have– the ability to analyze a company or sector to determine its likely future direction. And now he’s brought this background, experience and love of options to Options Trading Research, the unique daily e-letter devoted exclusively to helping individual investors profit from the very lucrative options market.