Tree-focused equities have shown meaningful volatility in 2026, with recent declines cutting year-to-date gains to roughly 5%, Raymond James reported, while the TSX has remained essentially flat.
Despite an uptick in lumber prices, stocks tied to lumber production have fallen. Raymond James attributes that disconnect to shifting expectations around interest rates and to geopolitical tensions in the Middle East, both of which the firm says are weighing on consumer confidence, rate cut expectations and housing activity.
The firm called attention to an improving backdrop for diversified commodity producers, driven in part by a substantial rally in Southern Yellow Pine (SYP) prices. Raymond James assigns Strong Buy ratings to Canfor and Interfor and an Outperform to West Fraser, reflecting the firm's view on which names stand to benefit from evolving price dynamics.
Examining two decades of seasonality, Raymond James found that diversified industrial companies tend to enter their most favorable earnings window during the second and third quarters. The firm expects share prices for commodity building materials producers to follow lumber prices upward, noting that these companies reported positive EBITDA in the first quarter of 2026 and, at current spot prices, are generating positive free cash flow.
Among diversified industrials, Raymond James highlights ADENTRA and Doman as Strong Buy ideas and Stella-Jones as an Outperform - names the firm views as likely beneficiaries of a rotation into industrials. The analysis also cites potential merger-and-acquisition optionality as an additional catalyst for these companies.
On the lumber side, the firm observed that SYP pricing has outperformed Western Spruce-Pine-Fir (WSPF) lumber, with the SYP-WSPF spread now close to parity. That contrasts with the roughly $180-per-thousand-board-feet discount seen in August 2025. Raymond James characterizes the narrowing of that spread as a driver for sequential earnings improvement among commodity lumber producers with exposure to the U.S. South.
Raymond James said Canfor and Interfor are particularly well positioned to capitalize on the SYP rally, while West Fraser's gains from SYP are partly offset by weaker conditions in oriented strand board (OSB), a factor that reduces the net upside for West Fraser relative to its peers.
The firm's historical analysis points to a seasonal rotation between pure lumber producers and diversified industrials. Over the 2006-2025 period, lumber producers produced their strongest monthly returns from November through January, averaging 5.3% in November, 4.1% in December and 2.3% in January.
By contrast, diversified industrials tended to outperform from April through July, with average monthly returns of 4.6% in April, 0.6% in May, 0.6% in June and 2.8% in July, according to the Raymond James data.
Implications and context
Raymond James' work frames a potential spring rotation out of lumber-centric stocks and into diversified industrial names, supported by commodity price moves and historical seasonality. The firm's ratings and sector views suggest select timber and industrial companies could see divergent performance depending on how commodity spreads and housing-related demand evolve.
Methodology note - The firm's conclusions are drawn from its analysis of price movements, spot pricing, reported EBITDA for Q1 2026, free cash flow generation at current prices, and 20 years of seasonality data.