Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 of 2018 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETFs by nearly 10 percentage points during the first 11 months of 2019. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Builders FirstSource, Inc. (NASDAQ:BLDR) from the perspective of those elite funds.
Builders FirstSource, Inc. (NASDAQ:BLDR) was in 36 hedge funds' portfolios at the end of September. BLDR has experienced an increase in support from the world's most elite money managers recently. There were 35 hedge funds in our database with BLDR positions at the end of the previous quarter. 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 below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's view the latest hedge fund action regarding Builders FirstSource, Inc. (NASDAQ:BLDR).
Hedge fund activity in Builders FirstSource, Inc. (NASDAQ:BLDR)
At Q3's end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the second quarter of 2019. On the other hand, there were a total of 37 hedge funds with a bullish position in BLDR a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings considerably (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 portfolio. Soapstone Capital is also relatively very bullish on the stock, dishing out 27.46 percent of its 13F equity portfolio to BLDR.
As one would reasonably expect, key hedge funds have jumped into Builders FirstSource, Inc. (NASDAQ:BLDR) headfirst. ACK Asset Management, managed by Richard S. Meisenberg, created 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. These stocks are AU Optronics Corp. (NYSE:AUO), HB Fuller Company (NYSE:FUL), The Simply Good Foods Company (NASDAQ:SMPL), and Nu Skin Enterprises, Inc. (NYSE:NUS). This group of stocks' market caps resemble 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on BLDR as the stock returned 23.5% during the first two months of Q4 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.
Disclosure: None. This article was originally published at Insider Monkey.