Bonhoeffer Capital Management, an asset management company, released its second-quarter 2024 investor letter. A copy of the letter can be downloaded here. In the second quarter of 2024, the fund returned a loss of 4.2% net of fees compared to 5.7% returns for MSCI World ex-US, a broad-based index, and 1.0% return for the DFA International Small Cap Value Fund. The fund’s stocks have an average EV/EBITDA of 3.8 and a weighted average earnings/free cash flow yield of 14.4% as of June 30, 2024. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2024.
Bonhoeffer Capital Management highlighted stocks like Builders FirstSource, Inc. (NYSE:BLDR) in the second quarter 2024 investor letter. 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 12.24%, and its shares gained 41.97% of their value over the last 52 weeks. On September 13, 2024, Builders FirstSource, Inc. (NYSE:BLDR) stock closed at $183.30 per share with a market capitalization of $21.346 billion.
Bonhoeffer Capital Management stated the following regarding Builders FirstSource, Inc. (NYSE:BLDR) in its Q2 2024 investor letter:
“Public Leverage Buyouts are public companies that use leverage to boost equity returns from historically stable cash flow businesses. Our broadcast TV franchises, leasing, building products distributors and dealerships fall into this category. One trend we find particularly compelling in these firms is growth creation through acquisitions which provides synergies and operational leverage associated with vertical and horizontal consolidation. The increased cash flow from acquisitions and subsequent synergies are used to repay the debt and repurchase stock, and the process is repeated. This strategy’s effectiveness is dependent upon the spread between the interest rates of their loans and the cash returns from the core business and acquisitions. Over the past few months, long-term interest rates have been declining and short-term rates are expected to follow so a large and growing spread is available to firms. An example is Builders FirstSource, Inc. (NYSE:BLDR) which has a high return on capital. One way to measure future expected returns are post-synergy cash flow ratios paid for acquisitions. Another way to measure future growth in expected returns is via incremental return on incremental invested capital (“RoIIC”)
Many of our holdings used the acquisition/buyback model described above. Some of these firms have also used modest leverage to magnify the returns of equity to 20% and above over the past five to ten years using the acquisition/buyback model. These firms include: Terravest, Asbury Automobile, Ashtead, Autohellas, BFS, and Millicom. In addition, many of these firms are buying back stock and the modest current valuations make these buybacks accretive…” (Click here to read the full text)
A crane lifting a truss during the construction of a new building.
Builders FirstSource, Inc. (NYSE:BLDR) is not on our list of 31 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 second quarter which was 72 in the previous quarter. In the second quarter, Builders FirstSource, Inc. (NYSE:BLDR) reported net sales of $4.5 billion, fell 1.6% year-over-year, driven by a 3.8% decline in core organic sales, reflecting the expected slowdown in multi-family housing segment. 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.
In another article, we discussed Builders FirstSource, Inc. (NYSE:BLDR) and shared Carillon Scout Mid Cap Fund’s views on the company. In addition, please check out our hedge fund investor letters Q2 2024 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.