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Timberland Stocks: Why It's Time To Knock On Wood For Profits… Literally

 March 11, 2010 12:22 PM

by Louis Basenese, Small Cap and Special Situations Expert

Thursday, March 12, 2010: Issue #1214

If you're not following the money into timberland stocks, you should. Here's why…

  • Timberland has outperformed the S&P 500 since 1910.
  • In recent history, timber has outperformed the market significantly. Since 1987, the NCREIF Timberland Index climbed by an average of 15% per year, compared to roughly 11% for the S&P 500.

Such strong outperformance boils down to one factor – biology.

Biology accounts for 65% to 75% of timberland's performance. Nothing can stop it from adding to the value of timberland investments. Come rain or shine, trees grow. And so does their value. By an average of 2% to 8% per year, in fact.

[Related -Stock Upgrades And Downgrades: ADBE, AJG, BBRY, BLL, CLF, RYN, S, UNFI]

Not even natural disasters can undermine timberland's value, because companies can still sell damaged timber. For example, after Mount St. Helens erupted, nearly 80% of the scorched timber was still suitable for sale.

Bottom line: Timberland is one investment virtually guaranteed to increase in value. And who doesn't want that?

Two More Compelling Reasons to Own Timberland Stocks

The benefits of investing in timberland stocks extend beyond pure profitability…

[Related -Stock Upgrades And Downgrades: CMA, CRL, CVLT, FITB, GATX, NFX, WY]

~ Inflation: Timber is a natural hedge here. Real prices for timberland have risen steadily for more than 100 years.

Even more attractive: During the last bout of runaway inflation (1973-1981), timberland was one of the top-performing hedges, increasing by an average of 22% per year.

~ Portfolio Diversification: This is the most compelling reason to become a tree-hugger. Timberland sports a very low correlation with most asset classes – less than 0.1. Accordingly, adding timber stocks to a well-diversified portfolio enhances the return potential, while reducing risk.

And with the market fighting significant headwinds – high unemployment, a comatose real estate market, weak consumer spending, runaway deficit spending, a potential credit-induced bubble in China, and a looming debt crisis in Europe (to name a few) – timberland could be the only asset to rise above it all.

That's not mere conjecture. History proves it…

Timberland ranks as the only asset class to deliver positive performance in four out of the five major market collapses – including 2008.

While the S&P 500 tanked 38%, timberland rose by 9.5%, based on the NCREIF Timberland Index.

With so many positive attributes, you'd think investors would be piling into timberland.

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