Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 817 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Builders FirstSource, Inc. (NASDAQ:BLDR) in this article.
Is BLDR a good stock to buy now? Builders FirstSource, Inc. (NASDAQ:BLDR) shareholders have witnessed an increase in activity from the world's largest hedge funds recently. Builders FirstSource, Inc. (NASDAQ:BLDR) was in 38 hedge funds' portfolios at the end of September. The all time high for this statistic is 43. There were 32 hedge funds in our database with BLDR holdings at the end of June. Our calculations also showed that BLDR isn't among the 30 most popular stocks among hedge funds (click for Q3 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 66 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.
Steven Tananbaum of GoldenTree Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we're going to go over the recent hedge fund action surrounding Builders FirstSource, Inc. (NASDAQ:BLDR).
Do Hedge Funds Think BLDR Is A Good Stock To Buy Now?
At the end of September, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in BLDR over the last 21 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
More specifically, Select Equity Group was the largest shareholder of Builders FirstSource, Inc. (NASDAQ:BLDR), with a stake worth $178.4 million reported as of the end of September. Trailing Select Equity Group was Samlyn Capital, which amassed a stake valued at $66.2 million. Renaissance Technologies, Ancient Art (Teton Capital), and GoldenTree Asset Management 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 Soapstone Capital allocated the biggest weight to Builders FirstSource, Inc. (NASDAQ:BLDR), around 16.02% of its 13F portfolio. Stadium Capital Management is also relatively very bullish on the stock, earmarking 13.03 percent of its 13F equity portfolio to BLDR.
Now, key hedge funds have jumped into Builders FirstSource, Inc. (NASDAQ:BLDR) headfirst. GoldenTree Asset Management, managed by Steven Tananbaum, assembled the largest position in Builders FirstSource, Inc. (NASDAQ:BLDR). GoldenTree Asset Management had $35.1 million invested in the company at the end of the quarter. Alexander Mitchell's Scopus Asset Management also initiated a $14.7 million position during the quarter. The other funds with brand new BLDR positions are Wayne Cooperman's Cobalt Capital Management, Andrew Byington's Appian Way Asset Management, and Anand Parekh's Alyeska Investment Group.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Builders FirstSource, Inc. (NASDAQ:BLDR) but similarly valued. We will take a look at The Aaron's Company, Inc. (NYSE:AAN), WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC), Denali Therapeutics Inc. (NASDAQ:DNLI), Grand Canyon Education Inc (NASDAQ:LOPE), World Wrestling Entertainment, Inc. (NYSE:WWE), Carter's, Inc. (NYSE:CRI), and ChemoCentryx Inc (NASDAQ:CCXI). All of these stocks' market caps are closest to BLDR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AAN,39,387786,12 WSC,36,574305,5 DNLI,24,121637,3 LOPE,32,193579,-3 WWE,27,389033,-2 CRI,26,222410,-7 CCXI,27,641967,-4 Average,30.1,361531,0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $362 million. That figure was $617 million in BLDR's case. The Aaron's Company, Inc. (NYSE:AAN) is the most popular stock in this table. On the other hand Denali Therapeutics Inc. (NASDAQ:DNLI) is the least popular one with only 24 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 83.2. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on BLDR as the stock returned 20.9% since the end of Q3 (through 12/18) 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.