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Potlatch (PCH) and Texas Instruments (TXN): Growth & Income Stocks

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Potlatch Corp (PCH - Free Report) is a Real Estate Investment Trust (REIT) with approximately 1.4 million acres of timberland in Alabama, Arkansas, Idaho, Minnesota and Mississippi. Potlatch, a certified forest practices leader, is committed to providing superior returns to stockholders through long-term stewardship of its forest resources. The company also conducts a land sales and development business and operates wood products manufacturing facilities through its taxable REIT subsidiary.

There have been three big drivers behind Potlatch’s recent uptick and expected growth in 2018; housing starts, lumber prices, and a recent acquisition.  As you can see in the graphs below, both timber prices, and building permits have been trending upwards over the past several months.  But most importantly for the company are the elevated lumber prices. 

As you can see in the chart below, the price of lumber has increased by almost just over 50% since the beginning of 2017.

 

Chart source:  Markets Insider. 

This surge in lumber prices has been moving in tandeum with U.S. building permits and to a lesser extent housing starts as you can see below.

The strenght in building permits indicates an uptick for Q1 improvement, and an overall confirmation that the housing market continues to gather strength going into 2018. 

Potlatch recently improved its overall position in the segment with the acquisition of Deltic Timber.  This will give Potlatch more exposure in Arkansas add about half a million more acres of timberland to its portfolio, two more saw mills, and a fiberboard to its portfolio.  Further, with mills, and timberland in Arkansas, the company is extremely close to the fast growing Texas, Florida, and Georgia housing markets. 

The company is also expecting to issue a one-time dividend estimated at $250 million to be distributed to shareholders by the end of 2018 as part of the REIT convesion process.  Currently, the company has a very solid +3.12% annual dividend yield.  All of this impressive data has caused the stock price, and future earnings estimates to increase throughout 2017, and into 2018.

Texas Instruments(TXN - Free Report) is a global semiconductor design and manufacturing company that develops analog ICs and embedded processors. They produce TI DLP technology and education technology products. Analog products connect the physical and the digital worlds -turning signals like sound, pressure, temperature, humidity and light into digital 1s and 0s to be used by electronic devices - and translating that data back to information we interact with in the real world. Embedded processors are the processing brains of electronics that gather inputs from analog chips and perform computational processing to operate a system. TI DLP® technology powers a range of display and advanced light control applications spanning industrial, enterprise, automotive and consumer market segments, including projectors and cinema technology.

The company has beaten the Zacks consensus earnings and revenue estimates for the past seven consecutive quarters.  While it is in the hot semiconductor, and analog segments, the company continues to innovate as well. 

In the recent Consumer Electronics Show (CES), Texas Instruments unveiled its new DLP technology for high resolution headlights.  These headlights are fully programable with more than 1 million addressable pixels per headlight; a thousand times more resolution than the existing adaptive driving beam.  This system allows automakers and suppliers to customize headlight systems that minimize glare to oncoming traffic while maximizing the brightness for drivers.  This system works for any light source, including laser illumination and LEDs. 

The company reports earnings on January 23, and they do have high expectations for the quarter.  As you can see below, the earnings estimats have been trending upwards over the past 90 days.

TXN also pays a nice +2.08% annual dividend. So we have a company that is well positioned to take advantage of the semiconductor sector growth trend, contiues to innovate new products for several industries, and they pay a solid dividend as well.

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