5 Commodity Stocks to Buy on the Dip

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

Number of Hedge Fund Holders: 57

YTD Share Price Decline as of July 8: 27.25%

Builders FirstSource, Inc. (NYSE:BLDR) is a Texas-based company that supplies building materials, manufactured components, and construction services to homebuilders, sub-contractors, and customers in the United States. The stock has declined 27.25% year to date as of July 8. 

BMO Capital analyst Ketan Mamtora on May 17 reaffirmed an Outperform rating on Builders FirstSource, Inc. (NYSE:BLDR) and lowered the price target on the shares to $90 from $96. The company’s Q1 earnings beat also marked a “record quarter, with tight markets and faster pass-through of prices boosting Builders’ margins in the near term”, the analyst told investors. The analyst also reported that the company’s robust balance sheet offers financial flexibility and the valuation is attractive at present levels.

Among the hedge funds tracked by Insider Monkey, 57 funds were long Builders FirstSource, Inc. (NYSE:BLDR) at the end of March 2022, with combined stakes valued at $1.8 billion. Coliseum Capital is the leading shareholder of the company, with 5.5 million shares worth $358.4 million. 

Here is what Black Bear Value Fund has to say about FirstSource, Inc. (NASDAQ:BLDR) in its Q1 2022 investor letter:

“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.”