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2 Surprising Housing Winners Are Killing It

By Rick Munarriz - Nov 6, 2012 at 4:11PM

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Lumber Liquidators and Trex are having great years.

Why is the market still surprised when home improvement specialists deliver strong quarterly results?

Shares of Trex (TREX -2.02%) soared 17% last week. The leading provider of wood-alternative decking is rolling as stable home prices and a gradually improving economy find consumers willing to spring for new weather-resistant patio decks.

Trex's net sales only grew 4% to $70.8 million during the third quarter, but that was actually ahead of the company's earlier guidance. Trex is still on track to grow its top line by 14.5% for all of 2012.

The news gets even better on the bottom line, where Trex's adjusted profit of $0.36 a share was more than double the $0.15 a share that the pros were forecasting. This is the third quarter in a row that finds Trex blasting past the prognosticators by a double-digit percentage margin.

Lumber Liquidators (LL -2.67%) has done the same thing. The hardwood flooring retailer saw its stock take off two weeks ago after it posted blowout results.

With Trex and Lumber Liquidators now having bested bottom-line estimates by huge margins in each of this year's first three quarters, who will be the chumps that don't see this coming during the fourth quarter?

The housing market is not only stabilizing, but improving. Home prices are starting to creep higher, and if homeowners were hesitant about upgrading their flooring or their backyards, the fundamentals of the housing industry should make them more likely to keep spending.

Trex and Lumber Liquidators aren't exactly on the radar for investors. Home Depot (HD -0.20%) and Lowe's (LOW -1.69%) are the two names that investors gravitate toward as housing improvement plays.

Why is that? There's nothing wrong with Lowe's or the orange-apron-donning folks at Home Depot, but they cover a wide range of hardware. Lumber Liquidators' hardwood flooring and Trex's growing line of low-maintenance decking, railings, and trim products are pure plays for common home improvement projects that actually increase the value of a home.

Instead of settling for the flat sales growth that analysts see at Lowe's this year -- or the modest 5% uptick at Home Depot -- investors can go with two speedsters that are expected to grow their revenue in the mid-teens this year.

It's true that Lumber Liquidators has already seen its shares more than triple this year, and Trex has roughly doubled over the past year. Clearly they're on some investing radars. However, we're still early in the housing recovery. Trex and Lumber Liquidators have room to run.

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Stocks Mentioned

Lumber Liquidators Holdings, Inc. Stock Quote
Lumber Liquidators Holdings, Inc.
LL
$10.95 (-2.67%) $0.30
Trex Company, Inc. Stock Quote
Trex Company, Inc.
TREX
$60.71 (-2.02%) $-1.25
The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
HD
$287.19 (-0.20%) $0.57
Lowe's Companies, Inc. Stock Quote
Lowe's Companies, Inc.
LOW
$184.69 (-1.69%) $-3.17

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

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