When seeking market-beating stocks, few investors would probably consider a category as pedestrian as heating, ventilation, air conditioning (HVAC). And that would be a missed opportunity.

Some HVAC stocks have been beating the market handily and not just lately but for years. One especially stellar performer: Lennox International Inc. (NYSE: LII), an industry leader with annual sales of $3.4 billion.

Lennox’s stock is up 190% in the past three years, handily outpacing the S&P 500.

Stocks typically only crush the market like this when the underlying company enjoys major long-term competitive advantages. And Lennox surely does.

At the macro level, it’s one of the five core players in the HVAC market, and the market outlook is bright due to continued strength in real estate. Lennox focuses much more on residential than commercial real estate. So data like rising housing starts, increased filings for single-family home construction permits and spiking homebuilder confidence all bode especially well for the firm’s future.

Another key macro indicator favoring Lennox is the Contractor Comfort Index, a measure of near-term growth expectations among HVAC contractors. April’s Index reading of 82 reflects very strong expectations (anything greater than 50 indicates a positive growth outlook). The index was developed by the Air Conditioning Contractors of America, a nonprofit industry group.

Longer term, HVAC demand is expected to rise 7% annually to about $20 billion by 2019. Along with new construction, greater regulation of coolant usage and equipment efficiency should enhance demand by prompting many more system replacements, analysts say. That’s good for Lennox because replacement products can account for as much as two-thirds of its business in any given year.

As HVAC orders rise, Lennox should be well-positioned to increase market share and margins with a completely reconfigured wholesale distribution system. Previously, distribution occurred through a centralized and less efficient network of two large warehouses and 65 wholesale stores.

But over the past few years, there’s been a transition to a more geographically diverse “hub and spoke” supply chain that gets Lennox closer to customers. Distribution now takes place through eight regional supply centers, 20 local centers and more than 160 wholesale outlets. This system is managed with specialized supply chain software that precludes the need to hire additional employees.

#-ad_banner-#With the enhanced supply chain, warehouse productivity is up by 25% and logistics costs are down by 20% (as a percentage of revenue). The on-time delivery rate has soared to 99%, from about 80% previously. Freight costs and delivery times are significantly lower, too.

R&D efforts are generating new technologies that target potentially large end markets. Last year, for example, Lennox introduced a more efficient heating and cooling technology called variant refrigerant flow in the United States.

Whereas traditional HVAC systems typically run at full blast, variant refrigeration flow is designed to vary output to precisely meet heating and cooling needs. The technology can cut energy costs by as much as 34%, estimates the U.S. General Services Administration.

The U.S. market for variant refrigeration flow is expanding at a double-digit pace and should exceed $1 billion within four years. Although Lennox faces a number of rivals in this burgeoning market, like Johnson Controls, Inc. (NYSE: JCI), Ingersoll-Rand Plc. (NYSE: IR) and Mitsubishi Corp. (OTC: MSBHY), its variant refrigeration business could surpass $100 million within four or five years, analysts project.

The firm is making headway with other technologies, too. For instance, its most advanced residential HVAC system includes high-precision zoning and is accessible from mobile devices or computers. On all systems, key features such as air purification and noise reduction are continually upgraded. On the commercial side, Lennox has been attracting customers with large, high-efficiency rooftop HVAC units. These units also come with “intelligent” controllers that incorporate more intuitive interfaces.

On a companywide basis, revenue and net income grew at a compounded rate of 6% and 33%, respectively, during the past three years, significantly beating the industry averages. Lennox’s traditional growth driver, the residential segment, continues to lead the way. Last year, segment revenue increased by 10%, while segment profits soared 31% to an all-time high of $236 million.

First-quarter results missed expectations, mainly because some commercial segment business was shifted by customers to the second, third or fourth quarter. However, thanks to a healthy backlog, management still expects 4%-to-8% overall revenue gains this year and earnings of $5.20-to-$5.60 a share. Earnings guidance implies full-year profit growth of 19%-to-28%.

Morningstar sees Lennox increasing earnings by 21% this year, 23% in 2016 and 17% in 2017.

Risks To Consider: Several key product inputs are relatively cheap right now, especially copper and steel. Lennox’s profit margins could shrink considerably if prices rebound. Also, company performance is strongly influenced by real estate market cycles.

Action To Take –> Remember, investing isn’t about finding exciting stocks. It’s about finding stocks that can deliver exciting returns, even if they’re not in the world’s most hyped industries.

HVAC stalwart Lennox International is a great example of this. Few firms can say they’ve beaten the market the way Lennox has. And there’s a very good chance that it will outperform in the coming years. When the stock’s historic price-to-earnings (P/E) ratio of 24 is applied to Morningstar’s earnings projections, the result suggests more than 60% upside potential through 2017.

Shares currently trade for 21 times this year’s projected earnings, noticeably higher than the S&P 500’s forward P/E of 18. But with an outlook like Lennox’s, the premium is warranted.

LII has sustained upward momentum, which could qualify it for StreetAuthority’s Maximum Profit system. It flags exactly which stocks are about to jump double, even triple digits in the coming days, weeks and months. In fact, academic studies have shown that momentum is one of the only indicators that has consistently outperformed the market. So far, the Maximum Profit system is making a small group of investors a lot of money. The system recently tagged a few more stocks that could do the same. To learn more, click here.