We recently compiled a list of the Jim Cramer’s 10 Go-To Stocks for Success. In this article, we are going to take a look at where Builders FirstSource Inc. (NASDAQ:BLDR) stands against Jim Cramer’s other go-to stocks for success.
In a recent episode of Mad Money, Jim Cramer offers a perspective on Nvidia and its recent market behavior on Wednesday’s episode of Mad Money, presenting a straightforward analysis of the company’s stock performance and the broader implications for investors. Cramer notes that owning the company’s stock was easier when the company was less well-known. As the company has become a major market focus, it’s attracted significant attention and criticism, which is evident after its recent financial report.
“Once you get this big, to the point where you become the focal point of the entire stock market, you’re going to have a target on your back. And that’s exactly what I think happened tonight to the stock after the firm reported a fine and dandy set of numbers. But fine and dandy is no longer enough for this incredible company.”
Despite reporting impressive numbers—122% revenue growth, a 152% increase in adjusted earnings per share, and a $50 billion buyback— the firm’s stock fell after hours. This reaction reflects high expectations that may have become unrealistic. The stock market as a whole suffered due to pre-quarter jitters surrounding the company, with declines in major indices like the Dow, S&P 500, and Nasdaq Composite. The drop in the firm’s stock price after the earnings report, coupled with concerns about its influence on the broader market, has led some to call this period the GPU maker’s “buzzkill quarter.”
“The Dow declining 59 points was bad, the S&P losing 0.6%, and the Nasdaq Composite 1.12%. And now, with the stock sinking after hours, we could be in for a hangover from what they’re already calling the company’s buzzkill quarter. But the people saying this might as well be having a watch party—yes, there was one—but there’s nothing to celebrate here. Move on.”
Cramer emphasizes that the company’s role in artificial intelligence is significant, but its overemphasis has become a burden on the market. The company’s market capitalization has skyrocketed from around $500 billion to over $3 trillion in just 18 months. Cramer suggests that the company’s immense importance might be overblown and that a recalibration might benefit the market.
“We know that artificial intelligence is the way of the future, and it’s the best bet on AI. But the company has become an albatross around the market’s neck because no one stock should be a proxy for the future of the S&P 500. Yet, that’s exactly what’s happened as the company has grown from around $500 billion in market cap just 18 months ago to more than $3 trillion now. Maybe after tonight, it will shed that millstone—like Apple did. You know what? That would be a godsend for all of us.”
Cramer expresses frustration with how quickly concerns about the company have spread to the broader tech sector, although he acknowledges that companies like Salesforce reported positive numbers. Cramer concludes by advising investors to diversify their portfolios beyond just tech stocks. He suggests that while diversification might seem less exciting, it is a crucial strategy to mitigate risks associated with over-reliance on a single sector or stock.
“It felt like insult added to injury when there was no injury to the company. It will muddle through and recharge at its next iteration. Blackwell goes boring, and we see renewed expectations. I hope they don’t get excessive like they were tonight.”
Our Methodology
This article reviews a recent episode of Jim Cramer’s Mad Money, where he discussed ten stocks he believes have significant growth potential. It also looks at how hedge funds view these stocks and ranks them based on their level of hedge fund ownership, starting with the least owned and moving to the most owned.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A crane lifting a truss during the construction of a new building.
Builders FirstSource Inc. (NASDAQ:BLDR)
Number of Hedge Fund Investors: 59
Builders FirstSource Inc. (NASDAQ:BLDR) is a leading U.S. supplier of building materials and construction services, benefiting greatly from its large network and scale. This strong position enables Builders FirstSource Inc. (NASDAQ:BLDR) to capitalize on the high demand for new homes and home improvements, driven by limited housing supply and favorable demographics. Recent strategic acquisitions, such as BMC Stock Holdings, have broadened Builders FirstSource Inc. (NASDAQ:BLDR)’s product offerings and expanded its reach into high-growth regions. These acquisitions also allow Builders FirstSource Inc. (NASDAQ:BLDR) to offer valuable services, like off-site construction solutions, which are becoming more popular.
In its latest Q2 2024 earnings report, Builders FirstSource Inc. (NASDAQ:BLDR) reported revenue of $5.1 billion, a 6.4% increase from the previous quarter, thanks to strong sales growth in core products and services. Builders FirstSource Inc. (NASDAQ:BLDR)’s adjusted EBITDA of $907 million reflects improved profit margins due to better operational efficiencies and pricing.
Despite some market challenges, Builders FirstSource Inc. (NASDAQ:BLDR) has shown financial resilience and effective cost management. Builders FirstSource Inc. (NASDAQ:BLDR) is also investing heavily in technology and digital tools to improve construction efficiency and automation. This focus on innovation, including prefabricated components and advanced digital solutions, enhances its competitive edge and boosts profit margins.
With its stock trading at a lower valuation compared to peers, Builders FirstSource Inc. (NASDAQ:BLDR) offers a promising investment opportunity. Its solid cash flow supports ongoing growth investments, shareholder returns through dividends and stock repurchases, and a disciplined capital allocation strategy. Recent moves, such as acquiring Fulcrum Building Group and enhancing its digital platform, further strengthen its market position and long-term growth prospects.
Black Bear Value Partners stated the following regarding Builders FirstSource, Inc. (NYSE:BLDR) in its Q2 2024 investor letter:
“Builders FirstSource, Inc. (NYSE: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 50%+ of the topline. The company has modest leverage and has been using their abundant free-cash-flow to buy in over 41% of the stock in the last ~3 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 $13-$16 per year. Margins are structurally higher given their increased shift into value-add products. At quarter end pricing of ~$138 that implies a free-cash-flow yield of 9-12%. which does not reflect the long-term housing needs or their pricing power.”
Overall BLDR ranks 6th on our list of Jim Cramer’s go-to stocks for success. While we acknowledge the potential of BLDR as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the ones on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
