5 Manufacturing Stocks at Risk as Consumer Spending, Orders Decline

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

Number of Hedge Fund Holders: 53

Builders FirstSource, Inc. (NASDAQ:BLDR) manufactures and supplies building materials, manufactured components, and construction services to professional homebuilders, sub-contractors, remodelers, and consumers in the United States. As mortgage rates rise and housing demand slows down, Builders FirstSource, Inc. (NASDAQ:BLDR) is at risk of slowing orders from homebuyers and homebuilders. Shares of Builders FirstSource, Inc. (NASDAQ:BLDR) have fallen more than 20% year to date, as of August 19.

Wall Street is bearish on Builders FirstSource, Inc. (NASDAQ:BLDR). On August 2, RBC Capital analyst Mike Dahl downgraded Builders FirstSource, Inc. (NASDAQ:BLDR) to Sector Perform from Outperform and revised his price target to $79 from $70. The analyst likes the company’s long-term growth projections but sees growing housing headwinds impacting the stock’s earnings in the coming quarters. This August, BTIG analyst Ryan Gilbert downgraded Builders FirstSource, Inc. (NASDAQ:BLDR) to Neutral from Buy.

At the close of Q2 2022, 53 hedge funds held stakes in Builders FirstSource, Inc. (NASDAQ:BLDR) worth $1.38 billion. This is compared to 57 positions in the previous quarter with stakes worth $1.87 billion.

As of June 30, Coliseum Capital owns roughly 6.46 million shares of Builders FirstSource, Inc. (NASDAQ:BLDR) and is the largest shareholder in the company. The investment covers 30.66% of Coliseum Capital’s investment portfolio.

Here is what Black Bear Value Partners had to say about Builders FirstSource, Inc. (NASDAQ:BLDR) in its second-quarter 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.

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 13-19% free-cash flow yield so little growth is needed for us to compound value at high rates.”