5 Best Housing Stocks to Buy Now

2. Builders FirstSource, Inc. (NYSE:BLDR)

Number of Hedge Fund Holders: 53

Builders FirstSource, Inc. (NYSE:BLDR) is an upstream homebuilding company that provides building materials and construction services to professional homebuilders. The firm is headquartered in Dallas, Texas, United States of America.

A key factor about Builders FirstSource, Inc. (NYSE:BLDR) is the fact that the firm has an outstanding return on capital invested (ROIC) of 43% – which is significantly higher than its weighted average cost of capital (WACC) and indicates that the firm is a worthy investment. Additionally, its consensus share price target is $97.21, for a significant upside over the current share price of $61.

Stifel raised Builders FirstSource, Inc. (NYSE:BLDR)’s share price target to $92 from 87 in August 2022 as it highlighted that the firm will generate significant cash flow and use it for acquisitions. Insider Monkey’s 895 hedge fund survey for this year’s June quarter saw 53 investors in the company.

Builders FirstSource, Inc. (NYSE:BLDR)’s largest investor in our database is Christopher Shackelton and Adam Gray’s Coliseum Capital which has a $347 million stake that comes through 6.4 million shares.

Black Bear Value Partners mentioned the company in its Q1 2022 investor letter. Here is what the fund said:

“Builders FirstSource is a supplier and manufacturer of building materials for professional homebuilders, subcontractors, remodelers, and consumers. Their products include factory-built roof and floor trusses, wall panels and stairs, vinyl windows and custom millwork.

The fundamental discussion about homebuilders applies to BLDR. As more homes are built across the country, there will be an increased need for scaled sourcing of products to homebuilders. There is a large amount of fragmentation in the supply chain which provides BLDR a long runway for acquisitions and realistic synergies.

The management team has been using their prodigious free cash flow to both acquire new businesses and buy in their stock. While I historically always liked their business, their historic high-debt levels gave me pause. They have right sized their balance sheet and are taking a very thoughtful view on capital allocation on behalf of shareholders.

BLDR should be able to generate $7-$10 a share in cash in the medium term with significant upside if they can scale through acquisition and/or further penetrate existing markets. We own it at a 11-15% free-cash flow yield so little growth is needed for us to compound value at high rates.”