By many measures, the U.S. housing market looks better than it has since before the financial crisis.

Sales of newly-built homes are picking up, and applications for new building permits recently hit an eight-year high. Home listings are up, and so are mortgage applications (despite rising borrowing costs). In the first quarter, real estate investment expanded at a 5% annualized rate while mortgage delinquencies and foreclosures continued to decline.

That makes this a good time to seek out a pure play on real estate. My top pick is the number-one supplier of wallboard and joint compound used in building construction and remodeling, USG Corp. (NYSE: USG).

The company has certainly seen its share of turmoil. Shortly after emerging from bankruptcy in 2006, USG found itself mired in the financial crisis. This brought five-straight years of painful losses, totaling nearly $2.2 billion, as building and remodeling activity tanked. Operations got back into the black in 2013, but growth slowed dramatically last year as the housing recovery took a breather.

Now the recovery is picking up steam, and there’s a powerful catalyst to keep it going: the millennial generation. As I noted in a recent profile of spirits maker Constellation Brands, Inc. (NYSE: STZ), millennials are about to become America’s largest generation. By year end, there’ll be more than 75 million of them.

With the oldest in this age cohort now in their mid-20s to mid-30s, this generation is poised to support a wave of home buying that should last for many years. As rents rise, many millennials are finding that it makes more financial sense to own. According to mortgage industry news provider HousingWire, 65% of older millennials say that they plan to buy a home within three months. Six months ago, just over half voiced this intention.

#-ad_banner-#They’ll buy a new home in some cases and, in others, an existing residence that may need some remodeling. Regardless, the trend should help to increase demand for USG’s core products and for ancillary offerings such as cement board, ceiling suspension systems and ceiling tiles.

USG has an enviable advantage on the product front: the proprietary Ultralight sheetrock that it developed five years ago. The product is as much as 30% lighter than conventional wallboard with similar strength.

Contractors have been willing to pay modest (up to 6%) premiums for Ultralight because it’s easier to transport and work with. Competitors have been trying unsuccessfully to develop something similar since Ultralight was introduced, so the innovation may well remain unrivaled for quite some time.

USG is set to meet rising demand through an extensive distribution network comprised of 142 company-operated outlets. USG also has supplier relationships with major building products retailers such as The Home Depot, Inc. (NYSE: HD) and Lowe’s Companies, Inc. (NYSE: LOW). The company outlets, in particular, help USG “push price increases on its products across all its customers and lead the charge for competitors to follow suit,” points out Morningstar analyst James Krapfel.

Incremental profitability “should be high over the next couple of years as USG does not have to commit a lot of capital to meet growing demand,” Krapfel adds. Indeed, capital and operating expenditures are both on the decline, now that USG is done with a massive streamlining and cost-reduction program covering most of the past eight years.

In that time, USG shut down high-cost manufacturing facilities, closed 125 distribution centers and cut its workforce by more than a third. The associated cost-efficiencies included a nearly 10% drop in annual capital spending since 2013 to $127 million. In April, management announced plans to cut overhead expenses in 2015 by $20 million (or 4%) to $325 million.

With all the factors in its favor, including an industry-leading 26% market share, USG should dramatically increase profits soon. This year, analysts see a nearly sevenfold increase in per share profits to $1.74. Growth is projected to remain brisk for the remainder of the decade.

As a result, USG should begin seeing substantial cash injections at a highly opportune time. With total debt of $2.2 billion, the firm is heavily leveraged and has some big loan payments coming due the next few years, (such as a $500 million, 6.3% senior note that matures in November 2016).

With more than $210 million in cash, nearly $300 million of available credit and solid free cash flow, USG is amply liquid and should be able to manage its debt. But with profits set to explode, it’ll also be able to take initiatives necessary to maintain industry leadership, such as international expansion and the pursuit of customers in the less-cyclical commercial repair and remodel business.

Risks To Consider: Although under control, USG’s debt would loom much larger if the housing market unexpectedly slowed back down. A sharp downturn could hurt business enough to put the firm in serious financial trouble.

Action To Take –> While being closely tied to the housing market carries risk, it can be a big advantage when housing is picking up. For the reasons described here, USG Corp. is arguably the best play on the current upturn.

Investors who doubt this might be interested to know that investing legend Warren Buffett owns a 30% stake in USG through his conglomerate Berkshire Hathaway, Inc. (NYSE: BRK-A). Some analysts believe that he’ll eventually acquire the remaining 70%.

He might want to consider doing this sooner rather than later. With a forward price-to-earnings (P/E) ratio of 12 (based on projected earnings of $2.26 a share in 2016), USG’s stock currently trades at a huge discount to the broader stock market and to its historical P/E of 43.

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