Do you have $ 5,000? Buy and hold these 2 stocks that beat the market

Investing in growth stocks is one of the best ways to get good returns, especially when the business in question has a clear path to continue to grow.

Trex (NYSE: TREX) is a leading brand in residential decking products that has achieved a yield of around 670% over the past five years, but management is pursuing a long-term goal of increasing capacity, which could lead to much growth. more important.

crocs (NASDAQ: CROX) has grown into a leading shoe brand with an excellent marketing strategy. The stock has risen over 2,000% in the past five years, but it is still trading at a reasonable price / earnings ratio.

Here are the details you should know before buying these stocks.

Image source: Getty Images.

Trex: The Leader in Alternative Wood Decking Products

The Trex brand is known for its superior quality, aesthetics and performance, especially when compared to pressure-treated wood products which are susceptible to moisture damage. The company has seen an increase in demand in recent years as low-maintenance alternatives to wood continue to gain market share from residential real wood products.

Even before the pandemic, Trex was in growth mode. Revenues nearly doubled between 2014 and 2019, and it’s a huge tailwind that the interest in home improvement that has gained momentum since last year only continues with the economy reopening. . The company recently announced an acceleration in third quarter revenue growth of 45%.

Another positive was the bottom line performance, where earnings per share jumped 73% year-on-year, despite rising raw material and transportation costs due to the inflationary environment. For this performance, management credited cost reduction projects, continuous improvement in automation, energy efficiency and raw material processing, as well as recent price increases.

Unsurprisingly, stocks hit a new high after the third quarter earnings report, but there could be more upside. In 2019, management launched an investment to increase manufacturing capacity, which is a good sign that management views current demand as sustainable in the long term. This investment will increase capacity by 70%, which should lead to increased revenue when completed.

Trex has two strong winds in favor: surging residential spending and the growing demand for more affordable and less maintenance options compared to real wood. The stock is always a buy at those highs ahead of capacity expansion, not to mention its potential in international markets.

Pink and blue flip flops sitting on a wooden deck.

Image source: Getty Images.

Crocs: One of the most popular brands for teens

Crocs are definitely not for everyone, but the business is an investor’s dream. Revenue has exploded this year, growing 77% in the first three quarters of 2021. This builds on the momentum of 2020 when Crocs had a record year and was named Brand of the Year by Footwear News. The stock has returned 180% year-to-date to match the already excellent returns investors have had for several years, but there is more to come.

Crocs has long passed the fashion stage. It has moved to the status of an iconic brand. Much of its appeal is due to the variety of designs and the company’s sophisticated marketing strategy. For example, Crocs took advantage of the popularity of celebrities such as Justin Bieber and Post Malone to market the shoes to a younger audience. Recently, his brand ranked # 6 on Piper sandlerTake stock with adolescents survey for fall 2021.

From a business standpoint, there is a lot to like. The shoes are very simple to make, which is great for profitability. Crocs generated $ 418 million in free cash flow in the past year on sales of $ 2.1 billion. This is a very high free cash flow margin of almost 20%. On the other hand, NikeThe free cash flow margin of is only 13%.

Management continues to capitalize on the growing strength of its brand with new products and collaborations. It has raised the low of its annual forecast and now expects revenue to drop from 62% to 65% from 2020. Even after the sharp rise since the start of the year, the stock trades at a 23x futures price / earnings ratio. At this valuation, in addition to the tremendous growth the company is experiencing, the stock could easily beat the market.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

About Myra R.

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