TPS Trade Alert – August 1, 2014
August 1, 2014
Recommendation:
Buy Bluelinx Holdings (NYSE: BXC) up to $1.30 per share.
Trade Rationale:
When researching companies, there are many different approaches to analyzing investment opportunities. Some investors look for growth, others look for value. Some look for revenue growth, others are more focused on profits.
I’m sure you get the picture.
Here’s the thing…
Sometimes picking a company isn’t even about the company itself, but the industry. An industry with strong momentum can do wonders for just about any type of company.
That’s not to say you should ignore a company’s fundamentals. However, a strong industry can help mask certain flaws in a business.
For example, when the real estate market is hot, most companies related to housing perform better than average. That includes homebuilders, mortgage companies, building suppliers, and more.
On the other hand, those businesses tend to struggle when the housing market is struggling – despite the fundamentals.
Take this past winter for instance. The weather across much of the country was terrible and the real estate market took it on the chin. As such, many housing-related companies also suffered and their stocks underperformed the overall market.
However, that’s about to change. As the summer stretches on, the housing market looks to be recovering. In fact, the numbers show buyers are returning to the market in droves.
One company which is in excellent shape to benefit from the housing rebound isBluelinx Holdings (NYSE: BXC).
BXC distributes building products in North America. The company offers products in two categories, structural products and specialty products. Structural products include plywood, lumber, rebar, and other standard wood construction products. Specialty products consist of engineered lumber, roofing, insulation, specialty panels, and more.
The company’s primary customers are building material dealers, industrial users of building products, manufactured housing builders, and home improvement centers. Basically, the client list includes the whole range of businesses across the construction industry.
One thing that immediately stands out about BXC is the company has a huge distribution footprint in an industry which is highly fragmented. It has distribution facilities at over 50 US locations. And, it’s the only one of the five largest distributors to purely focus on distribution.
What’s more, BXC has its own private fleet of more than 400 trucks. Plus, the company uses sophisticated supply chain/logistics software and technology to maximize efficiency.
But here’s the most important thing…
As I said before, the housing industry is once again on the rebound. The harsh winter may have put a dent in housing demand, but that’s now past us. And, BXC will absolutely benefit from an improvement in the housing market.
And that’s not all…
BXC generates a ton of revenues. Over the last year, the company pulled in over $2 billion in revenues! For a company with a market cap of just around $100 million, that’s a crazy amount of sales.
While the company doesn’t have a ton of cash on hand, it does have a healthy amount of assets (much in the form of real estate). Plus, the company’s cash flow is quite strong.
Despite the impending uptick in home sales and construction, and the substantial amount of revenues generated, BXC is trading at dirt cheap prices. In fact, the shares are trading at an absurdly low 0.05x sales!
At such a cheap valuation, it’s a good time to buy shares in BXC for our portfolio.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | Bluelinx Holdings |
| Ticker: | BXC |
| Recent Price: | $1.15 |
| Market Cap: | $101 million |
| Avg. Daily Volume: | 176,991 shares |
Chart:
Category: TPS Trade Alert
