Mad Money

Timber! Buy WY

Cramer: Weyerhaeuser's "A Buy"

The timber industry is in need of some serious revitalization, Cramer said, and the TREE Act might be the catalyst. That’s good news for companies like Weyerhaeuser.

The Timber Revitalization and Economic Enhancement Act, which Cramer said has a good chance of passing, would cut the corporate tax rate on timber sales to 14% from 35%, and create a 60% deduction for capital gains from those sales as well. The law would also make it easier for Weyerhaeuser to form a timber real estate investment trust, which would be great for the stock. If passed, the bill could mean $100 million or more in tax savings for WY.

But that’s the only reason Cramer likes the stock. Weyerhaeuser is selling its containerboard packaging and recycling business to International Paper for $6 billion and will use the funds to pay down debt. And WY’s historically earned more than $4 a share during good times for the business, and Cramer said that’s where the market’s headed.

In the end, though, timber companies are valued on their assets. WY’s timber business should have an enterprise value of roughly $9.3 billion when compared to the the valuations of pure-play timber REITs. That means the rest of the company’s worth $4.1 billion, Cramer said, which is way too low. Weyerhaeuser’s getting half the valuation of IP despite having very similar businesses. Even if WY’s non-timber businesses were discounted 10% relative to IP, the stock should still be worth $81, or 26% more than it’s trading at now. And, as Cramer pointed out, that’s without any bump from a passing of the TREE Act.

Watch the video for Cramer's call on Compass Minerals International and the state of the trucking industry.

Questions for Cramer?

Questions, comments, suggestions for the Mad Money website?