Buy the dip in this Canadian stock: RJ

Canadian lumber company Interfor Corp has been the target of a sharp sell-off in recent weeks, leading investment firm Raymond James to highlight the stock as a compelling buying opportunity. Despite a 11% drop on November 6, pulling shares below a flat Toronto Stock Exchange, the brokerage maintains a Strong Buy rating on Interfor's stock.

The selloff stemmed from concerns over Interfor's exposure to Mercer International, a pulp mill operator that filed for bankruptcy earlier in the year. However, Raymond James argues these fears are overstated, as the company has taken steps to limit its financial risk from the subsidiary. They've reduced receivables and shortened payment terms with Mercer, minimizing potential fallout from any future issues.

Raymond James believes Interfor's long-term prospects remain strong, projecting around 300% upside in a normalized housing market environment. The brokerage points to Interfor's impressive fundamentals, including industry-leading margins, strong cash flow generation, and ongoing debt reduction. Despite depressed housing demand and higher duties, Interfor has managed to maintain impressive margins of approximately C$80 per thousand board feet.

The firm estimates Interfor's revenue from chip sales to Mercer is only a small portion of its overall C$90 million market value, suggesting the stock's recent weakness creates a significant buying opportunity. Raymond James describes Interfor as one of the most compelling asymmetric opportunities in its coverage universe, and has added the stock to its Analyst Current Favorites list.