All-time investing great Warren Buffett is well-known for taking large positions in stocks he likes, and his top holdings naturally include many of the market’s most familiar names.

Yet as a value seeker and contrarian, he also bets boldly on lesser-known firms — like a leading but still under-the-radar building materials supplier based in Chicago. Through his well-known conglomerate Berkshire Hathaway, Inc. (NYSE: BRK.A), Buffett holds about 39 million shares of the company worth $1.1 billion based on a recent stock price of $28.10.

#-ad_banner-#This gives him a 27% stake, making him by far the company’s single-largest shareholder. The next largest is a German building materials producer with a nearly 14% stake.

I doubt many individual investors know of the company, which currently generates $3.6 billion in annual revenue, mainly by making wallboard and joint compound for the residential and commercial construction and remodeling markets. But the simple fact that Buffett owns it, and in large quantity, makes USG Corp. (NYSE: USG) well worth consideration.

Clearly, Buffett has major confidence in the housing recovery or he wouldn’t risk so much on USG, which is about as pure a play on real estate as you can find. Like many stocks in the sector, it has been sporting lofty valuations and currently has a price-to-earnings (P/E) ratio of 37 based on trailing earnings per share (EPS) of $0.76.

Owning such a high-P/E stock may seem out of character for a value maven like Buffett, but USG’s forward earnings multiple, based on 2015’s projected EPS of $2.30, is a mere 12.4.

This means USG has some growing to do and, in fact, consensus estimates are for EPS to expand 53% annually for the next five years. That’s a lot to ask, but USG has been on a hot streak for years now, incrementally reversing the horrible losses it suffered during the recession and returning to strong profitability.

Recent innovation will contribute greatly to keeping USG on the growth trajectory analysts project. Specifically, for several years, the firm has offered gypsum wallboard incorporating its proprietary Ultralight technology, basically sheetrock that’s 15%-to-30% lighter than conventional wallboard and just as strong. Thus, it’s easier and cheaper to transport and work with and less likely to sag when installed on ceilings.

While that alone is enough to generate better-than-average demand, the product could get even more of a boost from retail pricing, which is often substantially lower. At The Home Depot, Inc. (NYSE: HD), for example, a half-inch thick 4-by-8 sheet of Ultralight can be around $10 or so, versus the nearly $12 you might pay for a sheet of conventional wallboard of the same dimensions.

And there could be some room for price increases. According to Morningstar, half-inch-thick Ultralight has been able to command a modest 3%-to-6% premium per thousand square feet. This should remain possible as long as competitors don’t introduce similar products — something they’ve tried but haven’t been able to do without markedly increasing production costs.

Among USG’s other key advantages are dominance of the markets for joint compound and commercial-grade products for ceiling construction and renovation, such as ceiling tiles. In fact, there should soon be much stronger demand for all of USG’s products from commercial customers, who already account for half the firm’s revenue, because the long-hobbled commercial real estate market has been picking up very solidly.

There are couple compelling signs of this, including the Architecture Billings Index (ABI), a leading indicator of commercial and industrial building activity based on monthly billings by architectural firms involved in commercial and industrial construction. The latest ABI readings of 53 in August and 55.8 in July, for example, are typical of the past year and far higher than the recession low of about 33 in early 2009.

The Dodge Momentum Index (DMI), a leading indicator of nonresidential construction spending has also been strong. In August, for example, the DMI was at 118.8, or 14% higher than in August 2013. In June, it even managed to hit a decade high of 128.7.

As leading indicators, both the ABI and DMI provide strong clues about what to expect from domestic commercial and industrial real estate about a year from now. And based on where these two indexes are now, the future looks very bright. Because USG does about 90% of its business domestically and has an extensive distribution network of its own in addition to selling through Home Depot and others, it should be well-positioned to benefit.

Risks to Consider: Because USG is a pure a play on residential and commercial real estate, these markets can make or break the stock. If the real estate recovery stalls, USG will, too.

Action to Take –> Based on how rapidly USG erased recession-related losses and regained profitability, the 53%-a-year growth rate analysts are estimating should be in the ballpark. However, their projected earnings multiple of 20 might end up being too optimistic, considering the average for the past five years was only 8.

USG is profitable now and has attractive growth prospects,  so it’s reasonable to assume a P/E of 10 going forward — implying roughly 185% upside during the next five years to about $80 per share. Warren Buffett has recognized this potential, and other investors should, too.

As mentioned above, USG’s success is contingent on the health of the residential and commercial real estate markets — a nice balance is a stock that performs well in any economic climate. Since 1982, the stocks with the highest “Total Yield” score have returned 15% a year and outperformed the S&P 500 during the dot-com bubble and the 2008 financial collapse. To learn more about the Total Yield investing strategy, click here.