We recently published a list of the 15 Small-Cap Manufacturing Stocks Hedge Funds Are Buying. In this article, we are going to take a look at where Builders FirstSource Inc. (NYSE:BLDR) stands against other small-cap manufacturing stocks.
Earlier on February 26, Liz Ann Sonders, Charles Schwab chief investment strategist, joined CNBC’s ‘Squawk on the Street’ to discuss how manufacturing could stall due to the ongoing policy uncertainty. She thinks that the current market sentiment is focused on concerns about economic growth more than on inflation. Sonders noted a list of weakening indicators, such as consumer sentiment surveys, retail sales, and services PMI figures. She emphasized that rising policy uncertainty also manifests in reduced intentions to purchase large capital goods and causes a pullback in capital expenditures and spending plans. Sonders explained that, over the past year, market yields have alternated between responding primarily to inflation data and growth signals, both during periods of increases and declines. She thinks that the recent downward movement in yields is driven by worries about slowing growth more than by expectations of declining inflation. This has led investors to favor more defensive sectors within the market, which reflects a broader sense of caution.
Recent PMI data has shown services activity starting to decline, but manufacturing has picked up. This could result in a potential positive convergence between the two sectors. But Sonders thinks that this improvement in manufacturing could be at risk due to the policy-related uncertainty still ongoing. Therefore, many companies within the manufacturing sector are now increasingly cautious about future investments and expansion. Sonders also pointed out that while there have been discussions about significant deficit reductions, originally targeting $2 trillion, the actual figures are much smaller. The current visible cuts amount to less than $10 billion. She argued that it is premature to focus on these spending cuts alone, as the effects of tariffs, immigration, and deportation policies, and regulatory changes are collectively putting downward pressure on growth estimates and upward pressure on inflation expectations. She added that while tax policy changes are being discussed, these are more likely to affect the year-end outlook rather than the near-term trajectory.
Our Methodology
We first sifted through financial media reports, iShares U.S. Manufacturing ETF, Vanguard Industrials ETF, and Insider Monkey’s Q4 2024 hedge funds database reports to compile a list of the small-cap manufacturing stocks hedge funds are buying. For this article, we define small-cap stocks as those that trade between $10 billion and $20 billion, as of April 25. We then selected the top 15 stocks and ranked them in ascending order of the number of hedge funds that have stakes in them. In cases where an equal number of hedge funds held two or more stocks, we used the market cap as a tiebreaker.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A crane lifting a truss during the construction of a new building.
Builders FirstSource Inc. (NYSE:BLDR)
Market Capitalization as of April 25: $13.8 billion
Number of Hedge Fund Holders: 59
Builders FirstSource Inc. (NYSE:BLDR) manufactures and supplies building materials, manufactured components, and construction services to professional homebuilders, subcontractors, remodelers, and consumers. It offers manufactured products, such as wood floor & roof trusses, floor trusses, wall panels, stairs, and engineered wood products.
While Builders FirstSource operates across various product categories, its strategic emphasis and investments lie in the value-added products and services. In 2024, the company invested more than $75 million in expanding its value-added capabilities. This included the opening of 2 new truss manufacturing facilities, upgrades to 19 truss facilities, and enhancements to 13 millwork locations.
The success of this is evident in the 8% year-over-year increase in install sales in 2024. In 2024, Builders FirstSource Inc. (NYSE:BLDR) achieved $134 million in incremental digital sales despite a challenging market. The company now projects ~$200 million in additional incremental digital sales in 2025 from wallet share expansions and new customer acquisitions. On February 23, Keith Hughes from Truist Financial maintained a Buy rating on the stock, with a price target of $180.
Giverny Capital Asset Management recently initiated a position in the company and stated the following regarding Builders FirstSource Inc. (NYSE:BLDR) in its Q1 2025 investor letter:
“At the end of the quarter, we established a position in Builders FirstSource, Inc. (NYSE:BLDR), a building products distributor. We bought stock around $126 per share, while Wall Street analysts believe the company should earn nearly $10 per share this year. That feels like a good price for a company of this caliber.
Builders is a key support system for the nation’s homebuilders. It carries a wide range of products like lumber, millwork, windows and prefabricated components. Increasingly, it provides homebuilders with value-added services that help them build homes with less labor. For example, Builders can frame walls of a home at a central location and deliver panels to a job site for quick assembly. This reduces both labor and lumber waste on the job site and improves the home’s structural integrity. The US is likely to have long-term shortages of construction labor, so this off-site assembly creates considerable value and should become a common way to fabricate homes.
Builders is by far the largest value-added distributor with 590 branches around the country. It has procurement clout with lumber mills and others, and the sprawling branch network means it usually has lower freight costs to deliver materials to a job site…” (Click here to read the full text)
Overall, BLDR ranks 1st on our list of the small-cap manufacturing stocks hedge funds are buying. While we acknowledge the growth potential of BLDR, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than BLDR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.