Boise Cascade – no margin of safety

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Boise Cascade or BCC is one of the largest producers of engineered wood products and plywood in North America. Its growth in PAT over the past decade was driven mostly by the past 2 years' outlier product prices, which have since declined. 

The company is fundamentally sound with strong financials. BCC is a cyclical company heavily influenced by the housing sector, and valuations based on probability-weighting the outlier prices show no margin of safety.

[Image: Boise-Cascade-2023.png]
As a fundamental investor, you are looking for companies trading at a discount to their value based on the business fundamentals. The starting point in assessing the business fundamentals is looking at the historical performances.

When you apply this approach to NYSE Boise Cascade Company (BCC), you may not get a realistic picture. This is because its performance over the past few years were skewed by extra-ordinary high wood prices.

My view is that these high prices were due to COVID-19, the supply shortage, high inflation and even the Ukriane invasion. As such I do not think that they are sustainable

So if you use the past year performance to project the future, you will have a very optimistic picture. I think a more realistic picture is to look at “normalized” product prices. On such a basis, I do not think that there is currently an investment opportunity in BCC.

Of course, the market thinks differently and I suspect this is the reason for the current relatively high share price. Refer to page 19 of INVEST

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