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3 Surprising Stocks We Love For the Housing Boom

By Jason Hall and Tyler Crowe - Dec 20, 2020 at 6:01AM

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Sometimes the best investments are the most overlooked.

Home sales have surged in 2020 thanks to low interest rates and massive pent-up demand from millennials. Even if interest rates creep higher, millennials are the largest demographic group in the U.S. They're just now moving to homeownership, so home sales are likely to remain very strong for the next decade or longer. 

For investors, this presents a wonderful opportunity to profit. On the Nov. 6 edition of "The Wrap" on Motley Fool Live, host Jason Hall,  Motley Fool and Millionacres Contributor Tyler Crowe, and Millionacres Editor Deidre Woollard discussed three under-the-radar stocks set to profit from the housing boom. 

Jason Hall: What's your favorite stock to profit from the housing boom and why in 10 words or less? Deidre Woollard, you go first.

Deidre Woollard: I'm going to go with one that a lot of people don't like, which is Realogy ( RLGY 0.13% ), which is a traditional real estate brokerage stock that's had really good earnings this quarter, but has taken it on the chin the last few years, and it's still very cheap. That's the parent company for Coldwell Banker, Sotheby's International, and a couple of other traditional real estate brokerages.

Jason Hall: I love that. I absolutely love that because I think people, they're underappreciating the benefit of real estate professionals for most buyers and sellers. I absolutely love that. Tyler, what you got?

Tyler Crowe: This is going to be the one that you're going to shake your head at because it's the most me pick ever. It's AO Smith ( AOS 0.70% ). AO Smith makes commercial and residential water heaters. They're the largest manufacturer in the United States in terms of market share. The reason that I like them more than anything else, let's go back to 37 year-old housing stock, more than 80% of water heater sales in the United States are replacement of existing systems, so you have a massive installed-based that's a cash engine, and then all that new construction is just upside.

Jason Hall: I love it. That is very, very Tyler Crowe, and so it's a sleepy industry, easily overlooked.

Tyler Crowe: Boring, boring, boring.

Jason Hall: This isn't the kind of business that you're going to really have to worry about Alphabet getting into to compete against, right? They might make a smart water heater controller that goes through your whatever they make Google device, but they're probably not going to get into the nuts and bolts of that business. That's awesome. I really like that a lot. I really do.

I'm going to go out on a limb here, and I'm going to go with Trex ( TREX -1.52% ). Trex makes decking. They make decking, 95% of the material is recycled plastic film, polyethylene film. People say, "Well, plastic bags are getting outlawed everywhere," but most of the polyethylene film that they buy, it's like shrink wrap, pallet wrap. That stuff is not getting outlawed, it's huge interest in that. Then they use recycled wood scrap.

It's a great product, people love it, and they have a dominant market share. Their biggest competitor is wood, and wood still has well over 90% of the market. There's a massive, massive runway for growth. I love Trex.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Trex Company, Inc. Stock Quote
Trex Company, Inc.
$133.20 (-1.52%) $-2.06
Realogy Holdings Corp. Stock Quote
Realogy Holdings Corp.
$15.56 (0.13%) $0.02
A. O. Smith Corporation Stock Quote
A. O. Smith Corporation
$81.65 (0.70%) $0.57

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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