Is Builders FirstSource Inc. (BLDR) the Next Big Bet for Hedge Funds in Small-Cap Manufacturing Stocks?

We recently released a list of the 15 Little-Known Manufacturing Companies That Hedge Funds Are Investing In In this piece, we will examine how Builders FirstSource Inc. (NYSE:BLDR) measures up against other small-cap manufacturing companies.

On February 26, Liz Ann Sonders, who serves as the chief investment strategist at Charles Schwab, appeared on CNBC’s 'Squawk on the Street' to address potential manufacturing slowdowns caused by continuing policy uncertainties. According to her, present market sentiments revolve around apprehensions regarding economic expansion rather than inflationary pressures. During this discussion, she pointed out several diminishing metrics including consumer confidence levels, retail sales statistics, and service sector Purchasing Managers Index numbers. Additionally, she highlighted that escalating political ambiguities contribute to diminished propensities for acquiring significant capital assets, leading to decreased investments and expenditure strategies. Furthermore, Sonders mentioned that throughout the last twelve months, financial markets witnessed shifts where bond yields were predominantly influenced either by changes in inflation rates or indications of economic progress, whether increasing or decreasing. Currently, however, she believes these yields are dropping mainly because of anxieties surrounding an impending deceleration in economic activity, not necessarily lower anticipated inflation rates. Consequently, this shift has prompted investors to gravitate towards safeguarded segments within equity markets, indicative of a general inclination toward prudence among participants.

The latest Purchasing Managers' Index (PMI) indicates a downturn in service activities, whereas manufacturing seems to be gaining momentum. This shift might lead to a favorable alignment between both industries. However, according to Sonders, this resurgence in manufacturing may face challenges because of continuing uncertainties related to policies. Consequently, numerous firms in the manufacturing domain are becoming more hesitant regarding their future investment plans and expansions. Additionally, Sonders highlighted that although substantial deficit reduction talks were initially aiming for $2 trillion, only minor decreases—less than $10 billion—are currently observable. In her view, concentrating solely on these budgetary cutbacks would be too hasty since factors such as tariff implementations, migration regulations, deportations, and shifts in oversight are jointly contributing to lower economic forecasts and higher anticipated price hikes. Furthermore, she mentioned that proposed adjustments in taxation are expected to impact next-year projections instead of influencing short-term trends significantly.

Our Methodology

Initially, we went through financial news articles, along with data from the iShares U.S. Manufacturing ETF and the Vanguard Industrials ETF, alongside insider information from Insider Monkey’s Q4 2024 report on hedge fund activities, to create a roster of small-cap manufacturing shares that were attracting interest from hedge funds. Here, "small-cap" refers to companies whose stock value ranges from $10 billion to $20 billion as of April 25th. From these findings, we picked out the top 15 stocks which we subsequently ordered based on how many different hedge funds had investments in each one. When multiple stocks attracted identical levels of investment attention, their ranking was decided using market capitalization as a deciding factor.

Why do we focus on the stocks that hedge funds amass? It's straightforward: our analysis indicates that mimicking the leading stock choices from premier hedge funds allows us to surpass the market performance. Each quarter, our monthly bulletin chooses 14 small-cap and large-cap stocks, achieving a return of 373.4% since May 2014, which significantly outperforms its benchmark by 218 percentage points. s ee more details here ).

During the construction of a new building, a crane hoists a truss into place.

Builders FirstSource Inc. (NYSE: BLDR )

As of April 25, the Market Capitalization stands at $13.8 billion.

Number of Hedge Fund Owners: 59

Builders FirstSource Inc. (NYSE:BLDR) produces and distributes construction materials, prefabricated elements, and related services for professional home constructors, subcontractors, renovation experts, and individual buyers. Their product lineup includes prefab items like wooden floor and roof trusses, floor systems, wall panels, staircases, along with engineered timber solutions.

Although Builders FirstSource engages in multiple product lines, their primary focus for strategy and investment remains on value-added products and services. During 2024, the firm allocated over $75 million towards bolstering these capabilities. The allocation covered launching two additional truss fabrication plants, upgrading nineteen truss production sites, and improving thirteen millwork centers.

The success is clear through an 8% rise in yearly installation sales for 2024. That same year, Builders FirstSource Inc. (NYSE:BLDR) reported $134 million in extra digital revenue amid a tough market environment. They anticipate around $200 million more in added digital earnings during 2025 due to increased wallet shares and acquiring new customers. On February 23rd, Keith Hughes at Truist Financial kept their recommendation as 'Buy' for the stock, setting a target price of $180.

Giverny Capital Asset Management recently started a new stake in the firm and commented in their Q1 2025 shareholder communication about Builders FirstSource Inc. (NYSE:BLDR):

“By the end of the quarter, we took a stake in” Builders FirstSource, Inc. (NYSE:BLDR), which distributes building materials, we purchased shares at approximately $126 each. Meanwhile, according to Wall Street analysts, the firm is expected to make close to $10 per share this year. This seems like a reasonable valuation for such an esteemed company.

Builders serves as an essential backbone for the country’s homebuilding industry. They offer a broad spectrum of materials including timber, woodwork, panes, and pre-assembled parts. Moreover, they extend beneficial supplementary services to homebuilders aimed at minimizing labor requirements during constructions. A case in point would be framing house walls centrally before transporting these ready-to-use sections directly to building sites for rapid installation. Such methods minimize onsite manpower needs and material wastage while enhancing the overall stability of structures. Given anticipated persistent deficits in available workforce within U.S. construction sectors, assembling buildings away from project locations holds significant potential and could soon emerge as a standard practice in residential development processes.

Builders stands out as the biggest value-added distributor, boasting approximately 590 branches nationwide. Its strong relationships with lumber mills and other suppliers provide significant procurement advantages. Additionally, the extensive branch network typically allows for reduced freight expenses when delivering supplies to construction sites..." Tap here to view the complete article. )

Overall, BLDR ranks 1st On our roster of small-cap manufacturing equities favored by hedge funds, we recognize the expansion prospects of BLDR. However, our confidence leans towards the notion that artificial intelligence stocks offer substantial opportunities for generating significant gains with potentially quicker timelines. One such AI equity has surged since early 2025, whereas several well-known AI shares have declined approximately 25% during this period. Should you seek an AI stock deemed even more promising than BLDR yet trading below five times its earnings, explore our detailed analysis outlined in our latest report. cheapest AI stock .

READ NEXT: 20 Top AI Stocks You Should Consider Buying Today and 30 Top Stocks to Purchase Currently as Recommended by Billionaires .

Disclosure: There are none to declare. This article was first published here. Insider Monkey .

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