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Investing.com -- Tree stocks have experienced volatility in 2026, with recent losses reducing year-to-date gains to roughly 5%, according to a Raymond James analysis, while the TSX remains flat.
Despite rising lumber prices, lumber-focused stocks have declined as changing interest rate expectations and geopolitical tensions in the Middle East affect consumer confidence, rate cut expectations and housing activity, the firm said.
Raymond James highlighted an improving setup for diversified commodity producers, noting that Southern Yellow Pine prices have rallied significantly. The firm rates Canfor and Interfor as Strong Buy, and West Fraser as Outperform.
The analysis of 20 years of seasonality data indicates diversified industrial companies are entering their historically strongest earnings period in the second and third quarters. Raymond James expects commodity building materials producer share prices to rise alongside lumber pricing, supported by positive EBITDA in the first quarter of 2026 and positive free cash flow generation at current spot prices.
The firm sees value in diversified industrial names ADENTRA and Doman, both rated Strong Buy, alongside Stella-Jones, rated Outperform, as beneficiaries of this rotation. Raymond James also noted merger and acquisition optionality as potential catalysts.
Southern Yellow Pine pricing has outperformed Western Spruce-Pine-Fir lumber, with the SYP-WSPF spread currently near parity. This marks a shift from the $180 per thousand board feet discount observed in August 2025 and represents a catalyst for sequential earnings improvement for commodity lumber producers with US South regional exposure, according to the firm.
Raymond James said Canfor and Interfor are best positioned to benefit from the SYP rally, while West Fraser’s exposure is somewhat offset by a soft oriented strand board backdrop.
The firm’s analysis shows a seasonal rotation between lumber producers and diversified industrials. Lumber producers demonstrated the strongest performance from November through January over the 2006-2025 period, delivering average monthly returns of 5.3%, 4.1% and 2.3% respectively.
From April through July, diversified industrials emerge as outperformers, with average returns of 4.6%, 0.6%, 0.6% and 2.8%, the analysis showed.
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