Considering that investing in timber seems to be falling out of favor, shares of Rayonier (RYN) have held up extremely well over the last six weeks. The stock is essentially unchanged at $42.96 on September 18 from its August 5 price of $42.29.
 Now normally I don’t like to own shares of any company when its sector is falling out of favor—it puts the trend against me rather than with me—but in this case I’m willing to hold on because the negative short-term trend is a big long-term positive.
 In the short-term timber seems to have fallen out of favor with pension and endowment fund managers who had stocked up on timber land in recent years. These managers liked timber land because it produced above market returns and didn’t move up and down in lock-step with stocks. But these investors seem to be cutting back on their allocation to so-called alternative assets as the overall returns on their portfolios slide.
That may take a bit off Rayonier’s price in the short-term but in the longer term it gives the company a chance to put its strong balance sheet to work buying the land that pension and endowment fund managers are looking to sell. When it reported earnings at the end of July, company management said it saw opportunities to add to the 2.2 million acres of land that the company owned at the end of 2008. (In fact, Rayonier has grown its timberland base by about 2% over the last six quarters, according to Credit Suisse.)
With the home building industry in a deep slump, this land isn’t in demand for home building now but it will be. With Rayonier’s other businesses throwing off more than enough cash to pay the $2 a share annual dividend, these land acquisitions are laying up value for the future.
As of September 18, I’m raising my target price on Rayonier in my 12-18 month Jubak’s Picks portfolio to $46 a share by June 2010 from my previous target of $39 a share. Rayonier is also a member of my long-term Jubak Picks 50 portfolio.  (Full disclosure, I own shares of Rayonier in my personal portfolio.)
