Professional traders get paid because of one skill and one skill only: the ability to foresee what the world (or the economy at least) might look like in six to nine months. President Trump recently announced trade tariffs on trading partners like Canada and Mexico, which has sparked reactions in the business world. That’s exactly where a massive opportunity lies for investors today.
Out of all the industries that can be the focus for a potential buy opportunity, the lumber industry is going to be the focus simply because it offers an opportunity for investors to hedge their views on upcoming tariffs. First, consumer discretionary names will have to adjust to rising costs and tariff uncertainty, a theme that has already started considering the decline in consumer spending in February 2025.
The first step is to avoid the consumer branch of the lumber industry, which includes furniture products and others offered by Williams-Sonoma Inc. (NYSE: WSM). The second step is for investors to figure out an offsetting bet to hedge their views in case they are wrong, and that is where shares of Weyerhaeuser (NYSE: WY) come into play for some massive upside potential.
A Big Shift in The Market
The United States imports roughly 30% of its total lumber consumption from Canada annually. However, a few things could happen to each country now that trade tariffs are in place. For starters, supply chains in the United States might have to ramp up their production in order to mitigate cost increases.
This is going to create a potential bottleneck in the entire market, and that is something investors can see at play through the underperformance of the SDPR S&P Homebuilders ETF (NYSEARCA: XHB), which has declined by as much as 15.5% over the past quarter alone.
One reason the market has turned bearish on housing and homebuilders is indirectly due to these tariffs, as rising lumber prices due to supply and cost disruption might stall construction activity. From here, two things will happen: either homebuilders pass down their costs by making homes more expensive, or margins simply will tighten up (explaining the decline in the index).
The same dynamic is present for Williams-Sonoma stock, and here’s why investors should avoid buying that dip.
Williams-Sonoma: Cheap For a Reason
[content-module:Forecast|NYSE: WSM]Over the past month alone, shares of Williams-Sonoma have declined by as much as 10.6%, delivering one big blow to investors' morale and potentially bullish theses around this company. More than just avoiding this name until the lumber market is cleared, investors can take the reason behind the decline to help them make better decisions.
Looking into the company’s latest quarterly financials, investors can note that Williams-Sonoma invested up to $203.9 million in new inventory. Now, considering rising lumber costs and lower consumer spending, investors might safely assume that this new inventory will see an increased portion of write-offs (losses).
If new inventory will cost more during the coming quarter, and the inventory that’s on hand cannot be moved quick enough due to sluggish consumer activity, that’s a clear path to lower earnings per share (EPS) and, therefore, a much lower stock price. This is the bearish side of the lumber bet, but there is also an offsetting bullish one to consider.
Smart Money Chooses Weyerhaeuser
[content-module:Forecast|NYSE: WY]Over the past quarter alone, institutional players have bought up to $1.6 billion worth of Weyerhaeuser stock, a clear sign of confidence in this lumber producer and trader in the United States amid ongoing trade tariffs. If Canada trades less lumber, then domestic production will have to ramp up as the answer.
Which is exactly why Wall Street analysts now forecast up to $0.25 in EPS for Weyerhaeuser stock in the third quarter of 2025, a significant boost from today’s $0.11 in EPS. Considering that it is EPS that drive stock prices and valuations, this forecast sets the foundation for investors to benefit the most from the current trade tariff situation.
This might also explain why the broader market is willing to pay a price-to-earnings (P/E) ratio of 56.3x today, a steep premium to the rest of the construction sector’s 16.2x average valuation. Some investors might call this an expensive setup. Still, seasoned professionals will remind them that the market always overpays for companies expected to grow above the industry and the broader market.
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