JJC:   I always knew that the timber business was a tough one to be in, but that's about to change, thanks to a quiet piece of legislation that no one is paying much attention to... other than in Cramerica... called the TREE Act... that stands for Timber Revitalization and Economic Enhancement Act.

That's why I'm recommending the top name in timber.  This is quite a change for me.  I have hated this group for as long as possible, but I am looking for something for you...

At $62 bucks and change, there is a stock...  It's a stock that I have disliked probably since 1983...  And the stock is...  Weyerhaeuser Co. (WY).

At $62 bucks, the stock is only four points from its 52-week low...  because, whoa... it also develops real estate, but the homeowners have been having a bit of a rally...  I don't know if you've seen that.  It's what's called a classic early-cycle rally, now that interest rates are down so low, and they're not building so much...

So you can consider WY a real estate play that, get this, a safe - because they're making money - 3.8% dividend yield that's doing everything it can to reinvent itself.

They're also a big land manager...  6.4 million acres of U.S. timberland.  15 million acres in Canada...  We've been trying to find a way to play a bottom in real estate, with a good yield and responsible management... and the ability to pants its competitors... something WY did this week to long-time rival, International Paper (IP)...

Congress is trying to slip the TREE Act into the farm bill, which we know is going to pass, right?  And I think this attempt succeeds, because the timber industry really is in need of some revitalization and economic enhancement.

The bill should be huge, if it goes through...  which is why you have watch Washington - as we say all the time - if you want to make money on Wall Street...

The bill creates a 60% deduction on capital gains on timber sales... a 60% reduction...  It cuts the corporate tax rate on timber sales from 35% to 14%, taking a big chunk out of it, and it makes it easier to form a timber real estate investment trust (i.e., REIT)... which is something that WY could do by selling off everything but its timber assets. 

That would be great for the stock... great!

.  .  .  .  .

Now, the stock looks expensive.  We typically wouldn't recommend a stock that sells at 26x 2009 earnings...  But you've got to understand that this is a big cyclical business, and this cyclical downturn - as I say in Real Money - is just making the company look too expensive.  Cyclical companies like WY, you have to value them using a term that I tend not to like, because it's so Wall Street jibberish, but it's known as normalized earnings power...

We've just come through a really bad period for this business.  But, in a typical expansion, WY can earn north of $4 a share, and then we have to tack on the TREE bill...

Last year, it earned $1.66 a share.  In 2004, when times were good for real estate and timber, $4.97...  2005, $4.20...

I think we're going to be headed back to good times by 2010.  You can't wait until then.  You'll pay too much.  Ideally, I'd like to buy the stock in the $50s...  Then it would yield more than 4%.  And that is great versus the CDs now that the Fed keeps cutting rates.  

I don't know if it's going to get there, so I put the idea in your head now...  Get comfortable with it...  If it gets below $60, maybe you start buying...  

At the end of the day, for this kind of company, it's all about assets, not earnings.  You value it based on the value of its timber lands. 

WY's timber business should have an enterprise value... of roughly $9.3 billion, when you compare it to the valuations that pure timber REITs get...  That leaves the whole rest of the company worth only $4 billion and change. 

That's too little...

These businesses are similar to International Paper (IP), but their valuation is only half of what IP gets, and I'm not a big fan of IP at all...  They really bagged people with this deal... that's ridiculous...

If you assume WY's non-timber business deserves a 10% discount to IP's, even though it's better, then you get a stock that's worth $81 a share... more than 30% higher than it is right now... and that's without any of the stuff about the TREE Act boosting profits...