Black Bear Value Fund Aligns with the Long-Term Thesis for Builders FirstSource (BLDR)

Black Bear Value Fund, an investment advisor, released its fourth-quarter 2025 investor letter. A copy of the letter can be downloaded here. In December, the Black Bear Value Fund returned +0.2%, bringing 2025 returns to -12.6%. The S&P 500 returned +0.1% in December and +17.9% in 2025. In a rising market environment, the Fund has lost 10-15% over the two years. The Fund does not aim to replicate the Index, so some performance variation is expected. Heading into 2026, the firm has several strong names in its portfolio, even though the market is not receptive to them currently. The firm expects a significant rerating in these holdings as they are at the end of a capital-investment cycle. Please review the Fund’s top five holdings to gain insights into their key selections for 2025.

In its fourth-quarter 2025 investor letter, Black Bear Value Fund highlighted stocks such as Builders FirstSource, Inc. (NYSE:BLDR). 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 0.27%, and its shares lost 20.10% of their value over the last 52 weeks. On February 6, 2026, Builders FirstSource, Inc. (NYSE:BLDR) stock closed at $124.42 per share, with a market capitalization of $13.758 billion.

Black Bear Value Fund stated the following regarding Builders FirstSource, Inc. (NYSE:BLDR) in its fourth quarter 2025 investor letter:

“Builders FirstSource, Inc. (NYSE:BLDR) declined 28% in 2025 amidst weakness in the housing market and as new home starts pressured sentiment. Fundamentally, the Company performed well despite these headwinds and should generate a significant amount of free cash flow in 2025 ($800MM-$1BB). This translates to a trailing yield of 7-9%. If we owned this business privately, we would be pleased to collect a 7-9% yield in a weak year with the promise of significantly higher cashflows when housing starts pickup. We have previously discussed whether there could be short-term fluctuations with the stock, but so long as the long-term thesis was intact, we would continue to own the business.

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.

Our long-term thesis remains intact as there is a structural shortage of housing in the USA. Higher mortgage rates reduce the supply of existing home supply as homeowners are locked into low-rate mortgages. As we have seen in recent history, the overall pie of housing activity may shrink, with new homebuilders capturing an increasing share of home sales. Homebuilders can buy-down the mortgage to a lower rate and accept a lower, yet still healthy margin on the home sale.

The company has sustained higher gross margins as they have gained scale. I estimate normalized free-cash flow per share to be $9-$14 per year implying a free-cash-flow yield of 9-14% with no growth priced in.”

In another article, we covered Builders FirstSource, Inc. (NYSE:BLDR) and shared Heartland Value Plus Fund’s views on the company. In addition, please check out our hedge fund investor letters Q4 2025 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.