5 Housing Stocks to Watch as Price Declines Continue

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

Number of Hedge Fund Holders: 53

Builders FirstSource, Inc. (NYSE:BLDR) is a Texas-based manufacturer and supplier of building materials, engineered components, and construction services to professional homebuilders, sub-contractors, remodelers, and consumers in the United States. Builders FirstSource, Inc. (NYSE:BLDR) is one of the most prominent housing stocks to monitor as price declines continue. 

In early August, the company posted strong Q2 2022 results and updated guidance for the year. Builders FirstSource, Inc. (NYSE:BLDR) sees 2022 adjusted EBITDA margin growing by 120 to 160 basis points, compared to 90 to 110 bps in the previous target. Similarly, free cash flow for 2022 is expected to be $2.5 billion-$3 billion, versus $2 billion-$2.4 billion in the prior guidance. On August 17, Deutsche Bank analyst Joseph Ahlersmeyer initiated coverage of Builders FirstSource, Inc. (NYSE:BLDR) with a Buy rating and a $93 price target.

Among the hedge funds tracked by Insider Monkey, 53 funds were bullish on Builders FirstSource, Inc. (NYSE:BLDR) at the end of June 2022, compared to 57 funds in the previous quarter. Coliseum Capital is the biggest position holder in the company, with 6.46 million shares worth $347 million. 

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.”

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