Shares of Weyerhaeuser (WY ) kicked up 5.3%, to 71.93, on Dec. 15 when Franklin Mutual Advisers (BEN ), which owns a 7.6% stake, filed a letter with the Securities & Exchange Commission urging the company to take action to boost profits and unlock its intrinsic value. The stock hit a new high of 75.32 on Jan. 29 and is still at 75. This leading forest-products company has become a "very attractive play in an otherwise boring industry—on both fundamental and technical factors," says Dawn Bennett, CEO of Bennett Group Financial Services. "The recent volatility in the stock caused by active options trading has attracted some big investors, which tells me there is a lot more upside to it." There is talk Weyerhaeuser will sell more land and timber assets, which Bennett says could take the stock higher. One option is to turn the company into a real estate investment trust (REIT) for tax advantages and to make it more competitive. On Jan. 18, Weyerhaeuser named Debra Cafaro, a well-regarded REIT executive, to its board. That sends a "clear signal that Weyerhaeuser will be looking at moving its huge timberlands into a REIT," says Mark Wilde of Deutsche Bank (DB ), which owns shares and has done banking for the company. He rates the stock a buy. In 2006, Franklin Mutual pressured Potlatch (PCH ), another forest-products outfit, in which it is the largest holder, to convert to a REIT, notes Wilde. He values Weyerhaeuser's timberlands alone at $50 a share. This does not include other assets such as pulp, containerboard, building products, and construction. Wilde figures that, on asset valuation alone, Weyerhaeuser is worth 80.
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial