Black Bear Value Partners, an investment management firm, published its fourth quarter 2023 investor letter, a copy of which can be downloaded here. Black Bear Value Fund returned -1.1% in December and +17.7% in 2023 and the S&P 500 returned +4.5% in December and +26.3% in 2023. HFRI Value Index returned +4.4% and +13.8%, respectively for the same periods. In addition, please check the fund’s top five holdings to know its best picks in 2023.
Black Bear Value Partners featured stocks such as Builders FirstSource, Inc. (NYSE:BLDR) in the fourth quarter 2023 investor letter. Based in Irving, Texas, Builders FirstSource, Inc. (NYSE:BLDR) is a building material, manufactured components, and construction services provider. On January 31, 2024, Builders FirstSource, Inc. (NYSE:BLDR) stock closed at $173.73 per share. One-month return of Builders FirstSource, Inc. (NYSE:BLDR) was 10.45%, and its shares gained 106.23% of their value over the last 52 weeks. Builders FirstSource, Inc. (NYSE:BLDR) has a market capitalization of $21.429 billion.
Black Bear Value Partners stated the following regarding Builders FirstSource, Inc. (NYSE:BLDR) in its fourth quarter 2023 investor letter:
“We have owned Builders FirstSource, Inc. (NYSE:BLDR) and been discussing the name since it was in the 50’s (and owned lower). While it’s up dramatically (trading around $166 at year-end) it was still trading ~10% yield with modest leverage and encouraging prospects.
As a reminder, BLDR is a manufacturer and supplier of building materials with a focus on residential construction. Historically this business was cyclical with minimal pricing power as the primary products sold were lumber and other non-value-add housing materials. Since the GFC, BLDR has focused on growing their value-add business that is now 40%+ of the topline. The company has modest leverage and has been using their abundant free-cash-flow to buy in over 39% of the stock in the last 2 years.
While mortgage rates are higher, they are not unusual versus history. The low rates of the last 5-10 years are the outlier. We have a structural shortage of housing in the USA. With existing homeowners locked into low-rate mortgages, the aspiring homeowner may increasingly need to find a home from a homebuilder.
Normalized free-cash-flow per share looks to be in the range of $15-$17 per year. Margins are structurally higher given their increased shift into value-add products. At year end pricing of ~$166 that implies a free-cash-flow yield of 9-10%. The pricing still does not reflect the long-term wind at its back or the pricing power inherent in value-add products.”
A crane lifting a truss during the construction of a new building.
Builders FirstSource, Inc. (NYSE:BLDR) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 53 hedge fund portfolios held Builders FirstSource, Inc. (NYSE:BLDR) at the end of third quarter which was 57 in the previous quarter.
We discussed Builders FirstSource, Inc. (NYSE:BLDR) in another article and shared White Brook Capital’s views on the company. In addition, please check out our hedge fund investor letters Q4 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
