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5 Investment Ideas From Wall Street: Jan. 20

Stocks in this article: MSFT TNK FRO

5.)Take a second look at lumbar prices in 2012

The analysts at Citigroup are taking a deeper dive into lumber. The recent rise in lumbar prices has investors guessing whether the commodity will see a bull run as it did in early 2011. However, uncertainty over housing markets in the U.S. and China may keep a curb a long term rally.

Some analysts believe that demand for lumber will take a hit as the Chinese government continues to try to cool the country's surging property sector. However, there's also speculation that China may start buying more lumbar as signs increasingly suggest the economy is headed for a soft economic landing. Another factor to consider in forecasting lumber prices is the dollar, which has shown strength in the midst of the European debt crisis. Analysts say that a stronger dollar and seasonal factors, including cold weather in January, will put a cap on lumber futures prices.

Anthony Pettinari, analyst at Citigroup, questions whether the strength of lumber prices in January is a sign of things to come. "While near-term conditions are favorable, we expect modest 3% price and 5% shipment growth for lumber in 2012," he writes.

Underlying the basis for Pettinari's forecast is a surge in new multi-family homes. "We are forecasting U.S. housing starts to grow 19% to 700,000 starts in 2012," he writes, explaining that much of the growth will come from multi-family starts. "Multi-family units typically use 40-50% of the lumber of a single family home, which will keep overall lumbar volumes muted," he notes.

On the downside, Citigroup expects lumber exports to China to decline 5% to 10% this year. In 2011, China made up more than half of North American lumber exports. Another headwind for lumber prices will be an excess of lumbar in North America that Citigroup estimates will take three years to work down.

-- Written by Chao Deng in New York.

>To contact the writer of this article, click here: Chao Deng.

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