FUNDVIEW-Fidelity upbeat on N. American timber, homebuilders

* Likes Weyerhaeuser, Norbord, energy minnows

* Underweight China-dependent pulp and paper companies

* Commodities, emerging markets have peaked

By Gowri Jayakumar

BANGALORE, Feb 9 (Reuters) - A U.S. housing recovery, when it comes, will be swift and will boost lumber demand, prices and profits at timber and homebuilding companies, a Fidelity Canada fund manager said.

"When housing in America gets better, it will get better so fast it's going to make heads spin," Mark Schmehl, manager of Fidelity Canada's Special Situations Fund, told Reuters.

"It'll be a freight train out of control, because there is so much pent-up demand, and there's no supply."

The fund, which had aggregate assets of about $377 million as of Dec. 31, cherry picks neglected stocks where there is a potential growth story.

Schmehl, who has been managing the fund since its inception almost 4 years ago, prefers homebuilding and forestry products stocks like Weyerhaeuser Co (WY.N) and Norbord Inc (NBD.TO), along with small-scale energy companies that apply technology to their operations.

"Weyerhaeuser, in a way, embodies what I'm looking for in the housing trade ... a company with great assets, but which is not making a lot of money."

He believes Weyerhaeuser, whose $13 billion market value puts it among the largest U.S. homebuilders, could double in value when U.S. housing starts hit 1 million.

In December, new U.S. single-family home sales rose to their highest level in 8 months, jumping 17.5 percent to a 329,000 unit annual rate, according to Commerce Department data. [ID:nN2572204]

Canada's Norbord, which supplies oriented strand boards (OSB) -- similar to plywood, but cheaper -- to the U.S. housing market, is also expected to prove a sound investment. A housing recovery could send OSB prices skyrocketing.

"All of it is going to go berserk at the same time, because there's no supply, there's no inventory, and demand will be shockingly high on the upside. That's what's going to surprise everybody," said Schmehl.

As of end-2010, the fund held stakes in homebuilders Beazer Homes USA (BZH.N), M I Homes Inc (MHO.N) and Meritage Homes (MTH.N). It also invested in Canadian energy companies Legacy Oil Plus Gas (LEG.TO) and the smaller Pinecrest Energy (PRY.V).

Schmehl, however, was underweight on pulp and paper companies, which depend heavily on Chinese demand.

"Pure China plays make me nervous. I'm bullish on stuff that's more leveraged to America," he said, adding he was also skirting commodities and emerging markets as he reckons these have peaked.

The fund recorded an annual return of more than 25 percent last year, and has cumulative growth of 17.35 percent since its launch. It has outperformed the S&P/TSX Completion index by 250 basis points so far in 2011, Schmehl said.

"I'm actually very bullish on housing ... the recovery may not happen this year or next, but when it happens, it's going to be this huge hockey stick of growth." (Reporting by Gowri Jayakumar in Bangalore, Editing by Ian Geoghegan)