Were Hedge Funds Right About Piling Into Builders FirstSource, Inc. (BLDR)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Builders FirstSource, Inc. (NYSE:BLDR).

Builders FirstSource, Inc. (NYSE:BLDR) has seen an increase in support from the world’s most elite money managers recently. Builders FirstSource, Inc. (NYSE:BLDR) was in 60 hedge funds’ portfolios at the end of June. The all time high for this statistic was previously 48. This means the bullish number of hedge fund positions in this stock currently sits at its new all time high. Our calculations also showed that BLDR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ricky Sandler of Eminence Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to review the fresh hedge fund action regarding Builders FirstSource, Inc. (NYSE:BLDR).

Do Hedge Funds Think BLDR Is A Good Stock To Buy Now?

At second quarter’s end, a total of 60 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from one quarter earlier. By comparison, 32 hedge funds held shares or bullish call options in BLDR a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Coliseum Capital held the most valuable stake in Builders FirstSource, Inc. (NYSE:BLDR), which was worth $378 million at the end of the second quarter. On the second spot was Samlyn Capital which amassed $158.8 million worth of shares. Millennium Management, Anomaly Capital Management, and Eminence Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Coliseum Capital allocated the biggest weight to Builders FirstSource, Inc. (NYSE:BLDR), around 33.52% of its 13F portfolio. Soapstone Capital is also relatively very bullish on the stock, earmarking 15.83 percent of its 13F equity portfolio to BLDR.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Eminence Capital, managed by Ricky Sandler, created the most outsized position in Builders FirstSource, Inc. (NYSE:BLDR). Eminence Capital had $132 million invested in the company at the end of the quarter. Steven Tananbaum’s GoldenTree Asset Management also initiated a $51.1 million position during the quarter. The following funds were also among the new BLDR investors: Renaissance Technologies, James Woodson Davis’s Woodson Capital Management, and Michael Gelband’s ExodusPoint Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Builders FirstSource, Inc. (NYSE:BLDR) but similarly valued. We will take a look at ICL Group Ltd. (NYSE:ICL), Ciena Corporation (NYSE:CIEN), Berry Global Group Inc (NYSE:BERY), Pearson PLC (NYSE:PSO), Paysafe Limited (NYSE:PSFE), CyrusOne Inc (NASDAQ:CONE), and Flex Ltd. (NASDAQ:FLEX). This group of stocks’ market caps are similar to BLDR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.3 hedge funds with bullish positions and the average amount invested in these stocks was $698 million. That figure was $1946 million in BLDR’s case. Paysafe Limited (NYSE:PSFE) is the most popular stock in this table. On the other hand ICL Group Ltd. (NYSE:ICL) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Builders FirstSource, Inc. (NYSE:BLDR) is more popular among hedge funds. Our overall hedge fund sentiment score for BLDR is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 26.3% in 2021 through October 29th but still managed to beat the market by 2.3 percentage points. Hedge funds were also right about betting on BLDR as the stock returned 36.6% since the end of June (through 10/29) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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Disclosure: None. This article was originally published at Insider Monkey.