We recently published an article titled, Jim Cramer’s Best Performers List: Top 10 Picks. In this article, we are going to take a look at where Builders FirstSource, Inc. (NYSE:BLDR) stands against other stocks in Jim Cramer’s best performers list.
During Mad Money’s episode on October 1, host Jim Cramer urged investors to remember the market’s strong performance over the past quarter, making note of the rising tensions in the Middle East, which led to a decline in major stock indices on Tuesday.
He pointed out that the landscape has shifted beyond just the major technology companies, and shed light on the top performers of the S&P 500. Cramer observed that the last three months have witnessed what he described as “the revenge of the little guy companies.” He said:
“When you look at the 10 best performers of the third quarter, we discover that this formerly narrow market has totally changed its stripes.”
Cramer emphasized that the current market rally is driven by companies that are often overlooked. He said:
“It is a remarkable list that represents a real broadening out of the winners. Some would say it’s a sign of where we’re headed. I might not go that far, but clearly, we need to start digging a lot deeper to find winners going forward.”
In his recent commentary, Cramer highlighted that the major winners of the third quarter were unexpectedly obscure, primarily comprising a group of ten stocks focused on power generation and interest rate cuts.
He pointed out that these stocks diverged from the well-known Magnificent Seven and traditional FAANG names, with an absence of fast-growing medical or cybersecurity companies, many of which have faced challenges recently.
Cramer suggested that investors look to the bottom of the S&P 500 for insights into market trends. He noted that Super Micro finished last for the quarter, plummeting 49%. It serves as a reminder that backing the wrong AI investment can lead to significant losses. Despite this, Cramer emphasized the need for the market to focus on new stocks for long-term growth rather than relying on past leaders.
Our Methodology
For this article, we compiled a list of 10 stocks that Jim Cramer mentioned during his episode of Mad Money on October 1. We listed the stocks in ascending order of their hedge fund sentiment as of the second quarter, which was taken from Insider Monkey’s database of more than 900 hedge funds.
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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Cramer on Builders FirstSource, Inc. (NYSE:BLDR): ‘Pure Play Housing Supplier For The Pros’
Builders FirstSource, Inc. (NYSE:BLDR)
Number of Hedge Fund Holders: 59
Builders FirstSource, Inc. (NYSE:BLDR) is a manufacturer and supplier of building materials. It offers a wide range of manufactured components and construction services. The company caters primarily to professional homebuilders, subcontractors, remodelers, and individual consumers in the U.S. construction industry. During the episode, Cramer advised not to hesitate and wait. He said:
“… the pure play housing supplier for the pros is actually Builder First Source, a niche wholesaler that we’ve featured on the show repeatedly. [The] stock was up 40.1% in the quarter. Again, you cannot wait for Builder First Source to put up big numbers before you buy it, this is an obvious rate-cut winner so you got to get in ahead of time.”
As reported by Research and Markets, the U.S. construction industry is projected to grow by 5.6% in 2024, reaching a total value of $1.27 trillion. It has a projected annual growth rate of 4.7% through 2028, potentially hitting $1.53 trillion. Additionally, lower interest rates may stimulate demand for real estate, drive infrastructure investments, and boost consumer spending.
Builders FirstSource (NYSE:BLDR) has consistently pursued growth through an emphasis on value-added products and services. The approach is seen in recent acquisitions aimed at strengthening market position and expanding geographic reach.
In July, the company announced the acquisition of Western Truss & Components based in Flagstaff, Arizona, and CRi SoCal, located in Orange County, California. Such transactions are in line with its disciplined merger and acquisition strategy, which focuses on improving customer retention and extending leadership in value-added and specialty solutions.
During a recent earnings call, management expressed confidence in the health of the company’s M&A pipeline, indicating a continued ability to acquire in a fragmented market.
Bonhoeffer Capital Management stated the following regarding Builders FirstSource, Inc. (NYSE:BLDR) in its Q2 2024 investor letter:
“Public Leverage Buyouts are public companies that use leverage to boost equity returns from historically stable cash flow businesses. Our broadcast TV franchises, leasing, building products distributors and dealerships fall into this category. One trend we find particularly compelling in these firms is growth creation through acquisitions which provides synergies and operational leverage associated with vertical and horizontal consolidation. The increased cash flow from acquisitions and subsequent synergies are used to repay the debt and repurchase stock, and the process is repeated. This strategy’s effectiveness is dependent upon the spread between the interest rates of their loans and the cash returns from the core business and acquisitions. Over the past few months, long-term interest rates have been declining and short-term rates are expected to follow so a large and growing spread is available to firms. An example is Builders FirstSource, Inc. (NYSE:BLDR) which has a high return on capital. One way to measure future expected returns are post-synergy cash flow ratios paid for acquisitions. Another way to measure future growth in expected returns is via incremental return on incremental invested capital (“RoIIC”)
Many of our holdings used the acquisition/buyback model described above. Some of these firms have also used modest leverage to magnify the returns of equity to 20% and above over the past five to ten years using the acquisition/buyback model. These firms include: Terravest, Asbury Automobile, Ashtead, Autohellas, BFS, and Millicom. In addition, many of these firms are buying back stock and the modest current valuations make these buybacks accretive…” (Click here to read the full text)
Overall, BLDR ranks 3rd on our list of Jim Cramer’s best performers. While we acknowledge the potential of BLDR as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. 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: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.