Is Builders FirstSource, Inc. (NASDAQ:BLDR) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably but historically their consensus stock picks outperformed the market after adjusting for known risk factors.
Is Builders FirstSource, Inc. (NASDAQ:BLDR) worth your attention right now? The smart money is in a pessimistic mood. The number of long hedge fund positions retreated by 4 in recent months. Our calculations also showed that BLDR isn’t among the 30 most popular stocks among hedge funds. BLDR was in 33 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 37 hedge funds in our database with BLDR positions at the end of the previous quarter.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Let’s view the new hedge fund action encompassing Builders FirstSource, Inc. (NASDAQ:BLDR).
How are hedge funds trading Builders FirstSource, Inc. (NASDAQ:BLDR)?
Heading into the first quarter of 2019, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards BLDR over the last 14 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, Stadium Capital Management was the largest shareholder of Builders FirstSource, Inc. (NASDAQ:BLDR), with a stake worth $61.2 million reported as of the end of December. Trailing Stadium Capital Management was Raging Capital Management, which amassed a stake valued at $42.5 million. BeaconLight Capital, Soapstone Capital, and Lakewood Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Builders FirstSource, Inc. (NASDAQ:BLDR) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of hedgies that decided to sell off their entire stakes heading into Q3. At the top of the heap, David Rosen’s Rubric Capital Management sold off the largest position of the 700 funds followed by Insider Monkey, comprising an estimated $18.3 million in stock. Jerome L. Simon’s fund, Lonestar Capital Management, also cut its stock, about $13.4 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 4 funds heading into Q3.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Builders FirstSource, Inc. (NASDAQ:BLDR) but similarly valued. These stocks are Safety Insurance Group, Inc. (NASDAQ:SAFT), Usa Compression Partners LP (NYSE:USAC), TriMas Corp (NASDAQ:TRS), and Redwood Trust, Inc. (NYSE:RWT). This group of stocks’ market caps resemble BLDR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SAFT | 11 | 39390 | 0 |
| USAC | 5 | 7007 | 0 |
| TRS | 16 | 112325 | 0 |
| RWT | 12 | 83440 | 0 |
| Average | 11 | 60541 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $279 million in BLDR’s case. TriMas Corp (NASDAQ:TRS) is the most popular stock in this table. On the other hand Usa Compression Partners LP (NYSE:USAC) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Builders FirstSource, Inc. (NASDAQ:BLDR) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on BLDR, though not to the same extent, as the stock returned 24.1% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
