Trex - Building Materials Turnaround
This morning I added a building material long shot Trex Company (TREX) to the Barchart Van Meerten New High portfolio. This stock is added because of current price momentum and projections that this company can benefit from both new construction and remodelling as the economy recovers.
Trex Company, Inc. is a manufacturer of non-wood decking alternative products, which are marketed under the brand name Trex. Trex Wood-Polymer(TM) lumber is a wood/plastic composite that offers an attractive appearance and the workability of wood without wood's on-going maintenance requirements and functional disadvantages. Trex is manufactured in a proprietary process that combines waste wood fibers and reclaimed polyethylene and is used primarily for residential and commercial decking. They promote Trex among consumers and contractors as a premium decking product.
The new product the company is banking on is Transcend -- a recycled/manufactured wood product that can be made to mimic exotic hardwoods for a lower price and greater durability.
The company came to my attention by hitting new highs 20 straight days in a row and having a 30.49% price appreciation in the last month. That momentum earned it a 96% Barchart technical buy signal. The Relative Strength Index is 80.91% and still climbing. The stock traded this morning around 25.23 which is above its 50 day moving average of 20.19.
Wall Street brokerage analysts are calling this a turn around play with an increase in sales of 10.10% next year. Coming off a loss they expect earnings to increase by 1,550% and continue for the next 5 years at a 20.00% annual rate. They have 6 strong buy and 2 hold recommendations published.
The general investing public as reflected on Motley Fool is not yet convinced. The CAPS members are split 72 to 55 that the stock might beat the market but the more experienced All Stars are split 21 to 25 that it won't. I'm hoping that I found this one ahead of the curve and will benefit as the general investor changes their collective minds.
Points I considered:
1 - 96% Barchart technical buy signal
2 - 20 new highs and up 30.49% in the last month
3 - Relative Strength Index 80.91% and still rising
4 - Wall Street has 6 strong buys
5 - My caution is that the general investor sentiment is split on this one
Jim Van Meerten is an advisor to Marketocracy Capital Managementwho uses his model portfolios not only to manage their mutual funds but also their clients Separately Managed Accounts. You can read his blogs about those model portfolios and investing here and on Barchart Portfolio Blogs. Please leave a comment below or emailJimVanMeerten@gmail.com.
Disclosure: Jim Van Meerten through Marketocracy Capital Management has an interest in the stocks mentioned in this blog.