Tapping Timber's Potential

Last Thursday I noted in Columnist Conversation that timber has outperformed the S&P 500 for almost the last 100 years, according to institutional fund manager Jeremy Grantham. What's more, Grantham believes timber will outperform large-cap, U.S.-based stocks for the next several years. (As a reader correctly points out, Grantham has been making the bullish case for timber for the last few years.)

To not miss the forest for the trees, so to speak, I asked RealMoney readers to send me their best ideas on how to invest in this renewable natural resource. To sort out the myriad opinions, I'm presenting many of the responses in the form of a Zagat survey, i.e., it's you who write the review (with light editing on my part). I haven't verified any of what follows, so do your own homework before you invest. Thanks to everyone who participated.

The majority of respondents liked Plum Creek Timber (PCL - commentary - Cramer's Take). This real estate investment trust has 8 million acres of timberland, making it the second-largest private timberland owner in the U.S, according to the company's Web site. (Maryland, as a reference point, also covers about 8 million acres.) The firm's properties are located in the northwestern, southern and northeastern regions of the country.

Plum Creek, a reader noted, is "mostly a pure play on fiber, i.e., raw log sales. They do make some medium-density fiberboard, plywood and dimensional lumber as well, but it is not where they are focused."

Another reader said Plum Creek recently expanded its scope of operations. "The company is periodically approached by developers to sell land for real estate development, which they sometimes do. Now, however, they are entering into some joint ventures with their contribution to the project being the land. This takes the land out of immediate cash-producing status [i.e., timber sales] and puts it into a higher potential return project, although the return is delayed while the construction/development takes place. To date, this is a relatively small aspect of the business as they see how it works out. This opens up a certain extra degree of risk but also provides some higher longer-term potential."

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Hewitt Heiserman has been a financial analyst for 15 years and has worked for Fidelity Investments, Simplex Time Recorder, American Holdco and Breakaway Solutions. He is now writing a book on the Earnings Power Box, an analytical model he created to gauge the quality of a firm's profits. (The Earnings Power Box is a trademark of Hewitt Heiserman.) At the time of publication, Heiserman had no positions in any of the securities mentioned in this column, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Heiserman appreciates your feedback and invites you to send it to [e-mail].