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Why Trex Can Take Whatever This Troubled Market Dishes Out

By Motley Fool Staff - Nov 23, 2018 at 11:54AM

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David Gardner put it in his latest five-stock sampler, and you'll want to hear his reasons.

The stock market is heading lower -- indeed, all the gains the major indexes made in 2018 have evaporated. So this might not feel like an opportune moment to advocate for stock purchases. Even so, about every 10 weeks, Rule Breaker Investing podcast host and Motley Fool co-founder David Gardner picks a set of five stocks to recommend, and shares them with anyone who wants to listen. Well, it's that time again, and he has more than enough companies to choose from. To narrow his options, he set four rules for this sampler:

  1. The stock had to have been a big-time winner for the Rule Breaker portfolio over the long term.
  2. It had to have hit a new high in September.
  3. It had to have fallen at least 20% from that high in the weeks since.
  4. The company name had to start with the letter T.

Trex (TREX 3.45%), the maker of long-lasting composite outdoor decking, has been Gardner's best pick so far in the group. Here's why he thinks it will continue to outperform.

A full transcript follows the video.

This video was recorded on Nov. 14, 2018.

David Gardner: Here we come down the homestretch. Our final stock for this five-stock sampler is the single best performer over the long-term among all of these companies. It's probably the most obscure, as well. The ticker symbol is TREX, and sure enough, that's also the name of the company. This is the outdoor decking company, Trex. Trex, just looking at recent history, since that's our focus in this five-stock sampler, Trex was at $89 a share on September 10th. Today it's at $61. Trex is down 31%. And yet, I first recommended it in July of 2012, about six years ago, at $6.77. You just heard me say it's dropped from $89 to $61. Well, from $6.77 to $61, it's been outstanding. It's up over 830% since that pick.

I guess it's worth mentioning here, it's fun to think about it, of all of these companies, many of which are very technology-driven, and are really creating platforms like The Trade Desk, or you think about Teladoc and its technology, or 2U, bringing technology into classrooms, or video games, one of the best technologies of our time. And yet, the best performer among these is a composite outdoor decking company. It's a reminder that great companies are all around us. It's not always about the latest whiz-bang gadget. Although, I will say, within its field, Trex is the innovator. This composite outdoor decking, much superior to wood. I see this kind of decking in professional settings around the Washington D.C. area. This is the stuff that doesn't get badly damaged by water. We've had more rain in Washington D.C. than any year I can remember maybe in my lifetime, as a lifetime D.C. resident. You have to love Trex's outdoor decking. It looks like wood, but functions better. And that's why you see that kind of outperformance, a nine-bagger over the last six years. Usually, there is going to be a great product or product experience at the heart of a winning stock like that. In this case, it has nothing to do with the internet, which is where so much of our great performance often is in our kinds of companies.

I love how well Trex has done. Two things I love about Trex. One, and this is consistent with some of the others, I rerecommended it five years later. Yes, I did mention our cost basis to you earlier, and how it's a nine-bagger. But in February of 2017, I was casting about for what stock to rerecommend in Motley Fool Rule Breakers, and I picked Trex again. Back then, it was at $33. It's gone up 91%. What I love about this company is, it's still small. It's got a $4 billion market cap. It's a leader in its field. I only see more and more outdoor decking in the world's future as our population grows, and people rebuild or build new. I really like Trex's position.

I also like its relative obscurity. That's No. 2. Many people have never heard of Trex and would be shocked to think that you could find a stock like that, that would do that well in the service called Motley Fool Rule Breakers. Sometimes you have to love the more obscure companies. Peter Lynch did a great job highlighting these kinds of companies in his classic, One Up on Wall Street. Companies that don't sound sexy to Wall Street and don't make exciting elevator pitches, and yet, look at that performance.

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Trex Company, Inc. Stock Quote
Trex Company, Inc.
$56.30 (3.45%) $1.88

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