Price Patterns of Forestry and Paper Stocks

The six stock charts discussed in this article include a mix of long-term buy-and-hold stocks and short-term trading stocks. The buy-and-hold stocks have price patterns with multi-year upsides. The trading stocks exhibit brief price cycles from one to two years and longer cycles of up to six years.

The magnitude of the long-term buy-and-hold profits ranges from 100% to 600%. These gains are comparable to many growth and speculative stocks. However, most of the large gains were made in past upsides. Currently, the forest and paper stocks show wide short-term price fluctuations and are more suitable for trading than long-term buy and hold.

All the price charts show wide price fluctuations indicating short-term trading opportunities. Buy early in an upside and sell at a pre-determined profit, at a peak, or early in a downside. Don't chase a pricey stock and pay too much. Also consider dividend yield because it will add to your total return.

Abitibi-Consolidated (ABY)

The weekly price chart for Abitibi-Consolidated (ABY) (now AbitibiBowater (ABH)) shows declining prices from 1987 to 1993, a complete price cycle from 1993 to 1999, a briefer cycle and then widely fluctuating prices that are trending down.

A fluctuating price pattern like this one should be traded rather bought and held. For example, you want to buy early in an upside and sell after you make a specified profit or after you determine prices are about to or move to the downside or have moved to the downside. You do not want to buy on the downside. You can see the significant losses you would incur for most of the downside buy/sell combinations.

A buy-and-hold strategy makes little sense for this price pattern. Why buy the stock and watch prices move up and then move down to near or below your purchase price?

1993 - 1999 Price Cycle

The price chart of the 1993 - 1999 price cycle shows many trading opportunities when you could buy on the upside and sell at a profit before prices moved to the downside.

ABY - CTM Percent Winners for the 1993 - 1999 Price Cycle

The chart of CTM percent returns shows the winning trades in green and the losing trades in red. The winning trades (green) outnumbered the losing trades (red) 57% to 43%. With that many losers you would not want to buy and hold.

ABY - CTM Winners and Losers Map for the 1993 - 1999 Price Cycle

The CTM winners and losers map looks at the CTM percent return chart from above. You can easily see the 57% winning trades in green and the 43% losing trades in red.

Plum Creek (PCL)

Plum Creek's price pattern shows a long price upside that greatly rewarded buy-and-hold investors. The double top in 2001 warned investors of a future price decline. PCL rebounded sharply after the 2002 decline.

In addition to the buy-and-hold profits on the upside, there were many profitable opportunities for traders as the upside advanced.

PCL was an investor's dream stock from 1989 to 2001. Prices moved up significantly and the stock paid handsome dividends.

Sonoco Products Company (SON)

Sonoco Products Company had a long-term price upside from 1990 to 1998 when it peaked above $30 for a very respectable 600% gain. After the peak the stock declined to $15 in two years. It then started a new cycle that is continuing at the end of 2003.

Since its peak in 1998 the stock has not performed well for the buy-and-hold investor. However, the frequent price fluctuations have permitted the short-term trader to complete many profitable trades.

Weyerhaeuser (WY)

From 1991 through 1997 WY was in a prolonged upside making lots of money for the buy-and-hold investor. Then prices made a double top and declined sharply. From mid-1998 to the present prices have been extremely volatile. Prices reached the $60 level three times only to decline each after each up move. During this period the intermediate lows were at successive higher prices. The price pattern of flat highs and higher lows is called an ascending triangle and is usually a bullish formation. The current price is testing the mid $60 resistance level.

The volatile price pattern of the past six years indicates that you want to trade WY and not use the buy-and-hold strategy. Buy the stock when prices are on the upside and sell at a predetermined profit. Since the 1997-1998 double top there have have four upside trading opportunities. Do not buy the stock on the downside. You can see the large downside losses on the chart.

International Paper (IP)

The following price chart of weekly closes shows the long upside of IP prices from 1984 to 1997. After the double top in 1997, prices fell and become extremely volatile. Prices were very volatile from 1997 through 2000. The horizontal line on the chart connects the long cycle from 1994 through 2000 when prices started and returned to the high $20s.

The price volatility since the peak in 1997 means that investors must be very careful to only buy IP on the upside and then sell the stock when you have a predetermined profit. Do not buy the stock on the downside of prices. Currently, IP is a good stock to trade but not a good buy-and-hold stock.

Universal Forest Products UPFI

Universal Forest Products has had three significant upsides since 1995. Notice the classic head-and-shoulders formation in the second cycle, labeled 2. The current upside, labeled number 3, is very steep and is probably not sustainable.

Related Articles:

buyupside.com Articles About Forestry-Related Stocks
Portfolio of Paper and Paper Products Stocks
Portfolio of Forestry and Wood Products Stocks
The Complete Trading Model (CTM)

Updated November 17, 2007.