By Alex Seagle
The Contrary Investor

       The drumbeat continues on the real estate bubble in the U.S., and the stock, bonds and commodities are all looking relatively expensive. As contrarians, we are by default value-oriented investors. One asset class that has shown excellent historical returns with low correlation to the stock market is timber. One stock that has been a star in Fraser Management's portfolio's that still represents a good value is Plum Creek Timber (NYSE PCL).
        Trees? Timber as an investment? You've probably never considered it. But you ought to. Timber stacks up very well versus stocks. Managed timber (as the professional investors call it) has actually beaten the stock market - with less risk - over the long run. From 1973-2002, managed timber returned roughly 15% annually, while stocks returned about 11%.
        Trees don't know about the war in Iraq, or the bear market in the Nasdaq. While stocks couldn't keep up with inflation in the 1970s, timber investments never had a losing year. While real estate soared, timberland values fell in 2000, 2001, and 2002. Think of your timber investment as a good inflation hedge - the numbers show that to be true. According to legendary investor Jeremy Grantham, over the last century, timber prices have risen at 3.3% above the rate of inflation. Add 5% a year in income, and you've got a timber investment asset that has returned double digits, competing with stocks over the long run.
        The head of Plum Creek Timber said that every American "consumes" a 100-foot tree... every year. He pointed out that we take notes on paper (from a tree), sit at a conference table made of wood, in a wooden chair, in a room with wood trim all around, in a one-story office that was likely framed with, well, wood.
        Forest science is likely advanced. I recently stood among 36-year-old Douglas fir trees that will likely be cut in the next few years. When cut, they'll be in excess of 100 feet tall. And yet, this will be the fourth time this "stand" (as they call it) has been harvested. Instead of chopping down a forest and moving on, it is in the best interest of timberland companies to think in the very long term, and harvest in a sustainable way. In essence, they'll cut and replant roughly 1/40th of their forest every year.
        PCL pays a dividend in the 4% range. It is relatively cheap, with timber assets valued at only $800 to $1,500 per acre. Investing in timberland is something you probably haven't considered in your portfolio. But you should: timber as an investment has beaten stocks, with less volatility. It's uncorrelated to the stock market. You get paid high dividends. And you own millions of acres of exceptional real estate in the U.S. for around $1,000 an acre. Sounds good to me.
        Editor's Note: Alex Seagle is a contributing editor to The Contrary Investor, 309 S Willard St., Burlington, VT 05401, 1 year, 12 issues, $125.