Black Bear Value Partners, an investment management firm, published its first-quarter 2025 investor letter. A copy of the letter can be downloaded here. Black Bear Value Fund returned +0.8% in March and -1.3% YTD and the S&P 500 returned -5.7% in March and -4.3% YTD. HFRI Value Index returned -2.0% in March and -0.5% YTD. In addition, please check the fund’s top five holdings to know its best picks in 2025.
In its first quarter 2025 investor letter, Black Bear Value Fund emphasized stocks such as Builders FirstSource, Inc. (NYSE:BLDR). Based in Irving, Texas, Builders FirstSource, Inc. (NYSE:BLDR) is a building material, manufactured components, and construction services provider. The one-month return of Builders FirstSource, Inc. (NYSE:BLDR) was -12.44%, and its shares lost 42.85% of their value over the last 52 weeks. On April 8, 2025, Builders FirstSource, Inc. (NYSE:BLDR) stock closed at $113.83 per share with a market capitalization of $12.933 billion.
Black Bear Value Fund stated the following regarding Builders FirstSource, Inc. (NYSE:BLDR) in its Q1 2025 investor letter:
“A 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 40%+ of the topline. The company has modest leverage and has been using their abundant free-cash-flow to buy in over 45% of the stock in the last 33 months.
Our long-term thesis remains intact as there is a structural shortage of housing in the USA. Higher mortgage rates reduce the supply of existing home supply as homeowners are locked into low-rate mortgages. As we have seen in recent history, the overall pie of housing activity may shrink, with new homebuilders capturing an increasing share of home sales. Homebuilders can buy-down the mortgage to a lower rate and accept a lower, yet still healthy margin on the home sale.
Past letters have commented that the coming 6-12 months could be rocky and BLDR (the stock) has not disappointed. The business continues to perform well, and management continues to reduce the share count thereby increasing our ownership.
The company has sustained higher gross margins as they have gained scale. I estimate normalized free-cash flow per share to be $10-$15 per year implying a free-cash-flow yield of 8-12% with no growth priced in.”
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, 59 hedge fund portfolios held Builders FirstSource, Inc. (NYSE:BLDR) at the end of the fourth quarter which was 55 in the previous quarter. Builders FirstSource, Inc.’s (NYSE:BLDR) fourth quarter sales were $3.8 billion, a decrease of 8% compared to Q4 2023. While we acknowledge the potential of Builders FirstSource, Inc. (NYSE:BLDR) as an investment, our conviction lies in the belief that 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 as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
We covered Builders FirstSource, Inc. (NYSE:BLDR) in another article, where we shared the list of high growth non-tech stocks that are profitable in 2025. In addition, please check out our hedge fund investor letters Q1 2025 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.