5 Best Stocks to Buy for the Next 50 Years

4. Builders FirstSource, Inc. (NYSE:BLDR)

Number of Hedge Fund Holders: 57

Builders FirstSource, Inc. (NYSE:BLDR) supplies building materials and construction services to professional homebuilders, remodelers, and consumers in the United States. The housing market will experience a boom as Millennials start buying their first homes in a few years, which is a positive catalyst for Builders FirstSource, Inc. (NYSE:BLDR). 

On May 17, BMO Capital analyst Ketan Mamtora reiterated an ‘Outperform’ rating on Builders FirstSource, Inc. (NYSE:BLDR) but lowered the price target on the shares to $90 from $96. The company’s Q1 earnings beat illustrated a “record quarter, with tight markets and faster pass-through of prices boosting Builders’ margins in the near term”, the analyst told investors in a research note. He observed that the company’s fortress balance sheet lends financial flexibility and the stock’s valuation is attractive at current levels.

Among the hedge funds tracked by Insider Monkey, 57 funds were bullish on Builders FirstSource, Inc. (NYSE:BLDR) at the end of Q1 2022, with consolidated stakes worth $1.8 billion. Coliseum Capital held the leading position in the company, with 5.5 million shares valued at $358.4 million.

Here is what Black Bear Value Fund had to say about FirstSource, Inc. (NASDAQ:BLDR) in its Q1 2022 investor letter:

“Builders FirstSource is a supplier and manufacturer of building materials for professional homebuilders, subcontractors, remodelers, and consumers. Their products include factory-built roof and floor trusses, wall panels and stairs, vinyl windows and custom millwork.

The fundamental discussion about homebuilders applies to BLDR. As more homes are built across the country, there will be an increased need for scaled sourcing of products to homebuilders. There is a large amount of fragmentation in the supply chain which provides BLDR a long runway for acquisitions and realistic synergies.

The management team has been using their prodigious free cash flow to both acquire new businesses and buy in their stock. While I historically always liked their business, their historic high-debt levels gave me pause. They have right sized their balance sheet and are taking a very thoughtful view on capital allocation on behalf of shareholders.

BLDR should be able to generate $7-$10 a share in cash in the medium term with significant upside if they can scale through acquisition and/or further penetrate existing markets. We own it at a 11-15% free-cash flow yield so little growth is needed for us to compound value at high rates.”