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Show LUMBER INDUSTRY UPDATE In recent years the earnings of major ma-jor companies in the lumber industry such as Weyerhaeuser, Georgia-Pacific, Louisiana-Pacific, Champion International, Interna-tional, and Boise Cascade have been trending sharply downward due to the recession, especially in the housing industry. Last year's fourth quarter was a particularly par-ticularly difficult period for most of the wood product firms. This year, however, the leading companies in this industry are counting on a good upturn in the housing industry to improve their operations. REBOUND UNDERWAY Toward the end of last year housing ended on a strong upsurge, and industry officials expect the rebound to continue through 1983. They warn, however, that the strong industry upturn could stall unless projected Federal deficits are reduced. The recovery will depend largely large-ly on whether interest rates remain stable or drop further. At a recent hearing in Washington, government and industry representatives represen-tatives generally agreed that they expect ex-pect construction to be started on 1.3 million to 1.5 million housing units this year, up from about 1,060,000 in 1982. In 1981 they numbered 1,084,200 units. If this occurs, it naturally spells good news for the lumber industry which had actually shown steady gains since last fall. Prices for forest timber and milled lumber have rebounded, and inventories at western sawmills recently dropped to their lowest levels since World War II. Some lumber plants have been operating at 90 percent of capacity for several months in order to restock the pipelines. OPTIMISM EXPRESSED The managements of several forest product companies are on record as predicting better results this year. For example, the Champion International management stated awhile ago, "the overall economic situation is still exceedingly ex-ceedingly fragile and difficult to predict." But it added "at long last there are some glimmers of life in the housing market, so 1983 ought to be better." Georgia-Pacific management stated, "Last year can best be viewed as a year of unusual circumstances, with the prospect pro-spect of more normal and prosperous conditions in the future." The head of Boise Cascade has .in-' .in-' dicated that the building material segment seg-ment of the company should get a lift because of modest improvement in home construction. INVESTORS LOOK AHEAD Considering the downturn in earnings experienced by the foremost forest product pro-duct companies last year, one might suppose sup-pose that the stocks were severely depressed. However, such is not the case. For the most part, share prices have participated par-ticipated in the overall market advance and have rebounded well from their earlier lows. Recently the stocks of most of the wood products companies were priced near their 52-week highs. Obviously, therefore, investors have been anticipating an-ticipating an improvement in industry conditions and a return to a healthier building environment. HOLD THE STOCKS In recent years the Research Department Depart-ment of Babson's Reports recommended recommend-ed the purchase of the stocks of three industry in-dustry leaders Champion International, Interna-tional, Georgia-Pacifier- 'and Weyerhaeuser, Now, the advice is to hold these three issues along with two other important firms in the industry Boise Cascade and Louisiana-Pacific. Because the stocks of the above-mentioned above-mentioned forest product companies have all risen substantially from their earlier lows in anticipation of an earnings earn-ings turnaround for the industry, the Babson Research Staff is not anxious to "reach for them" by recommending purchase. pur-chase. But they all appear to be well worth holding at current levels. Purchases Pur-chases might again be recommended on a market pullback. |