In this article, we discuss 5 construction stocks that billionaires are buying. If you want to see more stocks in this selection, check out 10 Construction Stocks Billionaires Are Loading Up On.
5. Builders FirstSource, Inc. (NYSE:BLDR)
Number of Billionaire Investors: 12
Dollar Value of Billionaire Holdings: $290,106,077
Number of Hedge Fund Holders: 51
Builders FirstSource, Inc. (NYSE:BLDR) is a Dallas, Texas-based company that operates as a supplier and manufacturer of building materials and offers construction services. It is one of the leading suppliers to the residential construction and remodelling markets in the US. The company has secured fifth place on our list of the best construction stocks billionaires are purchasing.
On May 24, Matthew Bouley at Barclays increased the target price for Builders FirstSource, Inc. (NYSE:BLDR) from $150 to $160 and maintained an Overweight rating on the stock. The analyst highlighted that even though the housing market may be facing challenges, the new construction segment is experiencing improvement and is in a much stronger position.
Here’s what Black Bear Value Partners said about Builders FirstSource, Inc. (NYSE:BLDR) in its Q4 2022 investor letter:
“Builders FirstSource, Inc. (NYSE:BLDR) is a manufacturer and supplier of building materials with a focus on residential construction. Historically this business was cyclical with minimal pricing power as the primary products sold were lumber and other non-value-add housing materials. Since the GFC, BLDR has focused on growing their value-add business that is now 40%+ of the topline. BLDR can pre-assemble components such as a roof truss and deliver it to the homesite. This allows homebuilders (their end-users) to shorten their construction time and have higher returns on capital. The company has modest leverage and has been using their abundant free-cash-flow to buy in over 30% of the stock in the last 18 months.
While mortgage rates are higher, they are not unusual versus history. The low rates of the last 5-10 years are the outlier. We have a structural shortage of housing in the USA. With existing homeowners locked into low rate mortgages, the aspiring homeowner may increasingly need to find a home from a homebuilder. The next 6-12 months could be rocky as people adjust to the increase in pricing and rates. Eventually the housing market should adjust to the new normal (or rates could go down). We do have a large credit short which benefits if rates continue to go up.
Normalized free-cash-flow per share looks to be in the range of $8-$12 per year. At year end pricing of ~$65 that implies a free-cash-flow yield of 12-18%. If we owned this business privately and someone offered us a teens annual cash-flow yield, we would be jumping at it! The pessimism surrounding housing, interest rates and recession fears provides some of the reasons why this opportunity exists.”
