Builders FirstSource, Inc. (BLDR)

BLDR recently took a sharp drop because of a restructuring offer by organizations which hold 50% of the stock. A non-partial board is reviewing their $2 bond equity offer. There is no way this will go through, so the stock is safe, and should return to trading around $8 per share.

Whatever is moving people are buying. Trying to make up their loses.

Housing glut is a huge problem

Oversold (but then again, what isn't?!)

Yep, they have made some crappy financial decisions to serve their greed for the short term... At their current price and limited shares, I am willing to risk it. I believe they are set to capitalize on a market turn around...however, I don't believe the turn around will be until next year or later. So, I would look to buy in the 3-5 dollar range.

Building Material

Cramer predicts that the real estate market will bottom out in Q3 2009, while real estate related stocks have bottomed out this past july.

Lets see if this happens...

Floridabuilder marks this underperform for 1YR.

On the other hand, the tag "Home Improvement (13)" is down 20% in a year. It's not down as much as Home Builders.

Against the grain

Will drop back down, after this little spike. Make some easy points. Market is still down in this sector. Ride it down for points.

Can't go much lower. Housing bubble is moving past, next year this one will go up.

The bottom is close, might not be here yet, but its close. Builder has done a good job managing through the downturn, has enough cash to get through the rest of it, and be in good shape on the back end.

Value

From my short ideas/valuation screen

My favorite indicator of value in small cap stocks is insider buying. According to "Who's Buying Now" of 3/10/2008 BLDR had almost 3 million in insider buying during the previous week. Since Builder's First Source (BLDR) market cap is under 300 million, this is substantial insider buying.

According to the "Who's Buying Now" commentary, the company has managed to create $60 million in free cash flow and cut debt by 12.5% during what has been a terrible time to be in the building supplies business. Just think what this company can do when the market turns!

The stock is incredibly cheap at this time, the fundamentals are sound, There may be more to come with the mess, but contractors are still building not so much at a feverous pitch, but that is good for inventory of homes to be consumed. Depending on the area you live there is still a demand for homes. In the heat of all the subprime news, we sometimes forget that most of the homes purchased in the last few years were not subprime, but plain vanilla 30 year fixed.
Charles

http://www.streetinsider.com/Special+Reports/Pre-Open+Movers+211:+Hypercom+(HYC),+Possis+Medical+(POSS)+Higher+on+Takeover+Offers%3B+Builders+FirstSource+(BLDR)+Down+on+Guidance/3342965.html

Yes-man, long-term, bought 1/25/08;
Small-cap $0.26 B, home building products;
ROE 32.2, ROA 9.4, P/E 60

Similar to CX and the cement industry, competition is based on price, quality, and service, which hinges on turnaround times in the production facilities and on-time delieveries. Thus it is difficult to creat a wide, sustainable competitive advantage.

BLDR's facilities are larger than their competitors...as such, there is less duplication (managers, employees, and inventory), and the company can save on transportation costs by sending out larger truckloads to customers. In addition, the business operates in a "just-in-time" basis, facilitated by a single operating system that helps it manage not only for today, but to gather data to make improvements for tomorrow. The results of these and other operating efficiencies is excellent working capital management, a key driver of success in this business. Their savvy management has clearly learned a lesson or two from the Michael E. Porter playbook.

BLDR does not have a "wide-moat", but it has been successful with providing more value-added (and higher margin) products and services, as well as through growing via market share gains and aquisitions. As a result the business generates plenty of free cash, which should only get stronger as conditions normalize at some point in the future (its anyone's best guess when that will be, but odds are it will fall at some point over the next 2-3yr's).

The combination of fewer competitors chasing the same pool of profits, and the advantages of scale (and hence the expanding margins that will result) as they grow both the top and bottom line within their fragmented, inefficient, and growing (in the long term) industry, should alone provide investors at todays prices with outsized returns for years to come at minimal risk of permanent capital loss. Luckily Mr. Market, under panic and duress has offered us a compelling bargain...his confusion as it relates to BLDR (its not a homebuilder, not even close) as well as his shoot first and ask questions later mentality have given us the chance to own a great business, and due to unusual times, at a absurdly low price.