2 Wood Stocks Worth Watching Defying Challenging Industry Landscape

Core Viewpoint - The Zacks Building Products – Wood industry is facing challenges due to increased construction costs, high mortgage rates, and potential trade tariffs, which are straining consumer affordability and demand conditions [1][4][5]. Industry Overview - The industry encompasses forest product companies and manufacturers of lumber and wood products used in home construction, repair, and remodeling, including flooring products and timberland REITs [3]. Current Trends - High interest rates and trade policies are significantly impacting the U.S. housing and remodeling market, leading to low buyer urgency and limited residential remodeling activity [4]. - The reimplementation of tariffs on Canadian softwood lumber is expected to increase material costs, with estimates suggesting an additional 10,900 to the cost of constructing a new home due to these tariffs [5]. - The industry has historically experienced volatility in lumber prices, affecting inventory costs and profit margins [6]. Positive Developments - There is a strong need for investments in home performance improvements and modernization of aging housing stock, alongside increased funding for infrastructure and ESG-related projects [2][7]. - Companies are focusing on acquisitions, product innovation, and cost-reduction strategies to enhance operational efficiency and support growth [9]. Industry Performance - The Zacks Building Products – Wood industry has outperformed the broader Zacks Construction sector but has lagged behind the S&P 500 Composite over the past year, gaining 4.2% compared to the sector's 5.5% decline and the S&P 500's 9.8% increase [14]. - The industry's current forward 12-month price-to-earnings ratio stands at 22.76, higher than the S&P 500's 20.97 and the sector's 17.33 [17]. Company Highlights - Worthington Enterprises, Inc. has been benefiting from operational excellence, strategic innovation, and disciplined growth execution, with an upward estimate revision for 2025 earnings to 2.75 from $2.67 per share [22][23]. - PotlatchDeltic Corporation is experiencing growth driven by its broad-based strength across timberlands and wood products, with an upward estimate revision for 2025 earnings to 83 cents from 81 cents per share [27][28].