Hedge Funds Dipping Their Toes Back Into Builders FirstSource, Inc. (BLDR)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Builders FirstSource, Inc. (NASDAQ:BLDR) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Builders FirstSource, Inc. (NASDAQ:BLDR) was in 32 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 43. BLDR shareholders have witnessed an increase in hedge fund sentiment of late. There were 29 hedge funds in our database with BLDR positions at the end of the first quarter. Our calculations also showed that BLDR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Richard Driehaus of Driehaus Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to analyze the recent hedge fund action encompassing Builders FirstSource, Inc. (NASDAQ:BLDR).

How are hedge funds trading Builders FirstSource, Inc. (NASDAQ:BLDR)?

At second quarter’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the first quarter of 2020. On the other hand, there were a total of 35 hedge funds with a bullish position in BLDR a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Among these funds, Select Equity Group held the most valuable stake in Builders FirstSource, Inc. (NASDAQ:BLDR), which was worth $76 million at the end of the third quarter. On the second spot was Stadium Capital Management which amassed $69.3 million worth of shares. Renaissance Technologies, Soapstone Capital, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Stadium Capital Management allocated the biggest weight to Builders FirstSource, Inc. (NASDAQ:BLDR), around 27.79% of its 13F portfolio. Soapstone Capital is also relatively very bullish on the stock, setting aside 23.86 percent of its 13F equity portfolio to BLDR.

As one would reasonably expect, specific money managers have been driving this bullishness. Intrinsic Edge Capital, managed by Mark Coe, initiated the most outsized position in Builders FirstSource, Inc. (NASDAQ:BLDR). Intrinsic Edge Capital had $6.2 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $4.1 million investment in the stock during the quarter. The following funds were also among the new BLDR investors: David MacKnight’s One Fin Capital Management, Austin Wiggins Hopper’s AWH Capital, and Richard Driehaus’s Driehaus Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Builders FirstSource, Inc. (NASDAQ:BLDR). We will take a look at Kodiak Sciences Inc (NASDAQ:KOD), J&J Snack Foods Corp. (NASDAQ:JJSF), Integer Holdings Corporation (NYSE:ITGR), Wyndham Destinations, Inc. (NYSE:WYND), IBERIABANK Corporation (NASDAQ:IBKC), Avient Corporation (NYSE:AVNT), and Camping World Holdings, Inc. (NYSE:CWH). This group of stocks’ market valuations are similar to BLDR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KOD 20 861824 8
JJSF 17 70981 0
ITGR 17 87073 -3
WYND 34 434802 9
IBKC 26 201604 -4
AVNT 22 193411 -6
CWH 23 341511 7
Average 22.7 313029 1.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.7 hedge funds with bullish positions and the average amount invested in these stocks was $313 million. That figure was $457 million in BLDR’s case. Wyndham Destinations, Inc. (NYSE:WYND) is the most popular stock in this table. On the other hand J&J Snack Foods Corp. (NASDAQ:JJSF) is the least popular one with only 17 bullish hedge fund positions. Builders FirstSource, Inc. (NASDAQ:BLDR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BLDR is 74.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on BLDR as the stock returned 58.7% during Q3 (through September 14th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.