Black Bear Value Partners, an investment management firm, published its fourth quarter 2022 investor letter, a copy of which can be downloaded here. Black Bear Value Fund returned 1.8% in December and 12.5% in 2022 compared to the S&P 500’s return of -5.8% in December and -18.1% in 2022. In addition, please check the fund’s top five holdings to know its best picks in 2022.
Black Bear Value Partners highlighted stocks like Builders FirstSource, Inc. (NYSE:BLDR) in the Q4 2022 investor letter. Headquartered in Dallas, Texas, Builders FirstSource, Inc. (NYSE:BLDR) is a building material, manufactured components, and construction services provider. On March 2, 2023, Builders FirstSource, Inc. (NYSE:BLDR) stock closed at $86.70 per share. One-month return of Builders FirstSource, Inc. (NYSE:BLDR) was 5.60%, and its shares gained 16.99% of their value over the last 52 weeks. Builders FirstSource, Inc. (NYSE:BLDR) has a market capitalization of $11.966 billion.
Black Bear Value Partners made the following comment 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.”
Builders FirstSource, Inc. (NYSE:BLDR) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 52 hedge fund portfolios held Builders FirstSource, Inc. (NYSE:BLDR) at the end of the fourth quarter which was 49 in the previous quarter.
We discussed Builders FirstSource, Inc. (NYSE:BLDR) in another article and shared the list of best mid-cap stocks to buy according to top investors. In addition, please check out our hedge fund investor letters Q4 2022 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.
