Low interest rates, more companies allowing (even encouraging) their employees to work from home, and the largest cohort in American history are driving the housing market in a massive way. So far this year that's been fantastic for Trex (NYSE:TREX), which manufactures environmentally responsible decking out of recycled plastic and waste wood. The company's stock has surged almost 70% this year alone.
Should investors cash out and move on? Not according to one expert. On the Nov. 11 edition of "The Wrap" on Motley Fool Live, host Jason Hall points out the two catalysts -- demographics and environmental focus -- that he says makes Trex worth buying right now.
Jason Hall: There's also been an asset rotation out of work from home, home improvement, and a lot of real estate stocks since the vaccine was announced. I guess just this idea that all of a sudden, interest in buying a new home is going to go to the wayside. People are going to start going back to traveling and other leisure activities, and that's going to start soaking up a lot of the money that's going to Lowe's and Home Depot, and those companies. I think there might be some near-term reality, but that's not going to be till next summer before that "going back to normal" really happens.
But a stock that I think that it's created a little bit of a window of opportunity and the window could get even bigger is Trex. The ticker is T-R-E-X. Trex stocks fallen about 15% over less than a week. For those who don't know, Trex is a Rule Breakers recommendation, maybe in some other services too. But I know for sure it's been recommended on multiple times in Rule Breakers. Trex is a manufacturer of decking that's a substitute for natural wood decking. The decking is made out of recycled polyethylene film, which is used for pallet wrap and it's used in a lot of logistics operations. They actually don't really buy grocery store bags. It's mostly film that's used in industrial applications and recycled waste wood scraps that they make their decking out of. It's award-winning product, it's got name recognition, by far the largest.
I think they have about half the market now of this alternative wood decking. They're the only one that really has true national scale, you find them in Home Depot and Lowe's. They spend a ton of money working with home improvement professionals that do the installation, to do trainings, bringing them together, working with regional distributors as well. They're so deep across the entire industry.
Here's the bottom line: So I see two big trends happening. No. 1, whatever happens this year in the short term with how housing and people buying homes changes, there are still millions and millions of millennials that have really just in the past three years or so, started getting into the home market. There is this massive pent-up demand, there aren't anywhere near enough homes to meet it. Homebuilders have shifted and started to focus on this huge market to meet that demand, and it's like a decade-plus of demand that's going to grow the number of new homes that are built. That's a great leading indicator for a company like Trex because people buy homes and then they want to improve them. They want to do things like add a nice outdoor living space.
(Also) a lot of these people that are buying now, younger buyers prioritize environmental benefits, making a deck out of recycled polyethylene film and waste wood that's going to last 30 years and doesn't need the chemicals to stain and to waterproof, and things that you have to do like that with the regular wood deck. There's a lot of priority that's going to be given to that thing. There's this inflection point that's happening right now, that even if the stock continues to fall, the next 20 years is going to be fantastic for this company and I think it's worth buying today.