Here’s Tanner Callais from The Street Authority who recommends “Two Timber Stocks For Your Watchlist.”

Wealth From Wood

Stocks… bonds… annuities… real estate… the investment tools that can fund a comfortable retirement are endless.

But there’s one very profitable asset class that is worth its weight in… wood.

In fact, it’s outperformed many other investments and markets for several years now – and a recent downturn gives savvy investors an enticing entry point. So if you want to unlock timber’s profit potential that timber holds, the time to invest is now – and we’ve uncovered one place where prime timberland is selling for less than $30 an acre.

Not Just For Rugby And Kiwis

It didn’t seem to matter where I went during my stay in New Zealand… all I saw was entire hillsides covered from top to bottom, as enterprising farmers had planted trees anywhere they could.

And with good reason. “It’s their 401(k),” said my brother, who’d lived in New Zealand for nearly a year. “They plant trees, let them grow, then cut them down when they want to retire.”

When I think back to seeing the rows and rows of these farms, the investment potential of timber didn’t immediately occur to me. But these farmers have really got things figured out.

After all, they don’t worry about how the inflation rate is going to affect their holdings. They aren’t worried about what the Fed is doing to bail out struggling companies. They simply plant trees, let them grow, and know that the money they’ll make from selling the timber will take care of their retirement.

And based on the historical performance of timber, it will be a comfortable retirement, too…

A Strong Track Record Of Impressive Returns… During Both Bear Markets And Inflation

From 1972 to the present day, investing in lumber has produced annual returns of 11%. That means a $100,000 investment in lumber in 1972 would be worth about $4.3 million today.

In the U.S., you can often pick up land for under $1,000 an acre if the trees on it are still small. Within 10 to 15 years, you can thin out your tract and get paid about $500 an acre for the pulp. And after 25-30 years, when the trees are mature, you should pocket $4,000 to $5,000 an acre for them at current prices.

What’s more… lumber is also a fantastic way to diversify your portfolio. Like gold, timber tends to do better during periods when stocks and bonds go down. In fact, during three of the four largest bear markets of the 20^th century, the value of timber actually rose.

And during the highest inflationary cycle in modern U.S. history – between 1973 and 1981 – timber returned an impressive 22% per year.

Two Timber Stocks For Your Watchlist

If you’re looking for the biggest and “best of breed” timber stocks, take a look at Plum Creek Timber (NYSE: PCL) or Rayonier (NYSE: RYN). Both companies own massive tracts of timber in the United States and offer solid yields of 5.6% and 7.1% respectively.

But if you’re looking for an even more lucrative play, buying actual timberland is as attractive right now as we’ve ever seen. That’s why institutional investors like Harvard Management Company, which manages the university’s endowment, bid on timberland in May 2008.

But why? Despite all the factors that suggest lumber prices should be high – the industry’s long-term performance… the imminent infrastructure boom… and the fact that timberland is a limited resource – prices are still down.

But what Harvard arguably sees here is an excellent chance to invest at more favorable prices. And there are deals to be found… if you know where to look.

In fact, as I was conducting my research for The Street Authority Market Advisor, I uncovered some unbelievable prices for timberland.

For example, small tracts of 200-acre land are going for only $45,000 ($225 per acre). Some plots are as low as $165 per acre. The absolute best we found was priced at only $29 per acre of timberland – less than the cost of dinner for two.

Granted, buying timberland takes a little more time and investment than simply buying a few shares on the NYSE. But with this low cost per acre and the historic performance of this most basic material, we see right now as the opportunity of a decade.

Source: For $29 A Pop, You Can Put Your Retirement On Autopilot

Why exactly has this happened? Especially when commodity prices are soaring pretty much across the board. Aren’t the explorers supposed to show leverage to the underlying resource prices to which they seek?

History demonstrates typical long term leverage with exploration stocks. If gold goes up 20% you can reasonably expect the gold shares to perform at a multiple of that figure. At the present times the “juniors” aren’t even keeping up with rising commodity prices.

The ongoing global credit crunch is a primary reason for this disparity. The appetite for speculation has waned. Global players have sold off winning positions in order to create liquidity. Some suggest that hedge funds may be shorting the explorers. Whatever the reasons are, the anomaly won’t persist indefinitely.

Either commodity prices must fall or junior miners must rise and close the gap. I don’t see commodity prices falling significantly from present levels. They stand as protection against currency debasement which happens to be a growth industry these days. The US dollar remains at the epicenter.

Opportunities abound. Let’s look at a simple example in a company called Amera Resources (AMS:Toronto).

This portrayal is for demonstration purposes only. I personally own this stock. It is not in the Resource Windfall Speculator portfolio and this is not a buy recommendation.

That’s an ugly chart. The stock is going down on exceedingly low volume (15,000 shares this day). Amera’s 52 week high is $.41. It’s near its 52 week low of $.11. Amera has 34.5 million shares outstanding. At $.14 Canadian, that gives them an overall market cap of a miniscule $4.83 million.

Surely something must be fundamentally flawed with this company. But that’s not the case. They have money, excellent management and exceedingly promising projects in mining friendly South American countries. I wrote a series some time back on “The Perfect Resource Exploration Stock”: The Perfect Resource Exploration Stock, The Perfect Resource Exploration Stock: Part II, The Perfect Resource Exploration Stock Part 3: Anatomy of a Ten-Bagger.Amera fits the majority of the qualifications for such a title.

Buying high quality speculative stocks with a market cap of $5-$10 million is pretty much a “no brainer” from the perspective of savvy resource investors. It’s called ultra cheap lottery tickets. Say they prove up an asset valued at $300 million, for example. That would be 60X the current market cap level.

There are zero assurances of such an event transpiring. That’s why it’s called speculation.

Lots of market participants would be much more comfortable buying stocks at annual highs instead of annual lows. Low prices freak them out and they end up capitulating. Capitulation is pretty much rampant these days. I believe that’s what shows clearly on the Amera chart.

When the last sellers give up their shares the market then becomes dominated by buyers. The bottom is in. The market then heads back towards the next extreme. The fear/greed cycle is inherent within all markets. All the more so in the junior explorers. Some companies are selling at prices close to their cash on hand value.

Summers are typically dreary times for the juniors as well. Buyers are more interested in their tans and exotic travel than following stocks. Will the sector go even lower during this vulnerable time? It’s entirely possible.

Still, the downside seems dwarfed by the upside potential. It’s likely to be an historic opportunity for accumulation. What’s your long term view on commodity prices?

Invest Resourcefully,

Rusty

P.S. To let me know what you thought of today’s article, send an e-mail to: feedback@investorsdailyedge.com.

Source: They’re Giving Away Resource Stocks