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How Did Builders FirstSource, Inc. (BLDR) Perform In Comparison to Hedge Fund Favorites in 2019?

Asma UL Husna

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Builders FirstSource, Inc. (NASDAQ:BLDR) and compare its performance to hedge funds' consensus picks in 2019.

Builders FirstSource, Inc. (NASDAQ:BLDR) investors should be aware of an increase in support from the world's most elite money managers recently. 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 at the end of this article for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman of GLG Partners[/caption]

Noam Gottesman GLG Partners

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind let's review the fresh hedge fund action encompassing Builders FirstSource, Inc. (NASDAQ:BLDR).

How have hedgies been trading Builders FirstSource, Inc. (NASDAQ:BLDR)?

At the end of the third quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the previous quarter. By comparison, 37 hedge funds held shares or bullish call options in BLDR a year ago. With the smart money's capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

The largest stake in Builders FirstSource, Inc. (NASDAQ:BLDR) was held by Stadium Capital Management, which reported holding $79.2 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $56.2 million position. Other investors bullish on the company included Soapstone Capital, BeaconLight Capital, and GLG Partners. In terms of the portfolio weights assigned to each position Stadium Capital Management allocated the biggest weight to Builders FirstSource, Inc. (NASDAQ:BLDR), around 47.67% of its 13F portfolio. Soapstone Capital is also relatively very bullish on the stock, earmarking 27.46 percent of its 13F equity portfolio to BLDR.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. ACK Asset Management, managed by Richard S. Meisenberg, established the most valuable position in Builders FirstSource, Inc. (NASDAQ:BLDR). ACK Asset Management had $16.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $9.7 million position during the quarter. The other funds with brand new BLDR positions are Richard Driehaus's Driehaus Capital, Matthew Hulsizer's PEAK6 Capital Management, and Donald Sussman's Paloma Partners.

Let's now review 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 AU Optronics Corp. (NYSE:AUO), HB Fuller Co (NYSE:FUL), The Simply Good Foods Company (NASDAQ:SMPL), and Nu Skin Enterprises, Inc. (NYSE:NUS). This group of 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 AUO,8,20810,1 FUL,14,146701,2 SMPL,21,219922,-2 NUS,20,244787,0 Average,15.75,158055,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $158 million. That figure was $499 million in BLDR's case. The Simply Good Foods Company (NASDAQ:SMPL) is the most popular stock in this table. On the other hand AU Optronics Corp. (NYSE:AUO) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Builders FirstSource, Inc. (NASDAQ:BLDR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on BLDR as the stock returned 128.6% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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