Builders FirstSource (BLDR)

If you’re a high school student competing in a Stock Market Game and searching for top stocks to buy now, Builders FirstSource (BLDR) could be the key to taking the lead in your classroom competition. This Texas-based company is a major supplier for home construction materials, and its smart business strategy makes it a compelling choice for short-term trading—a high-risk, high-reward strategy that could give you an edge in the game.

Builders FirstSource has built its reputation on two key tactics: acquiring smaller companies and buying back its own shares, which makes it a “corporate cannibal.” The company has snapped up over 60 smaller businesses, incorporating them seamlessly into its operations. For example, names like John’s Lumber and JB Millworks have been absorbed into Builders’ broader operations, enhancing the company’s reach and efficiency. “The board is committed to not having a lazy balance sheet,” says CFO Peter Jackson. This aggressive growth strategy makes the company an interesting pick for students using momentum trading to win their Stock Market Game.

Momentum trading involves buying stocks that are on the rise, and Builders FirstSource has the potential to skyrocket as the housing market recovers. Even though it faces short-term challenges—like a recent dip in lumber prices and declining demand for multifamily housing construction—its long-term outlook remains strong. The company supplies massive homebuilders like D.R. Horton and Pulte Homes, and its presence in 48 of the top 50 metropolitan areas gives it a competitive advantage.

“Builders FirstSource is well-positioned to thrive once the housing market stabilizes,” says Jack Egan, an analyst at Charter Equity. This makes it a top stock to buy now for students looking to capitalize on short-term gains. The company trades at 11.4 times 2023 earnings and 15.1 times projected 2024 earnings, making it more affordable than other options in the market.

But remember, while high-risk, high-reward strategies can help you win the Stock Market Game, they aren’t the best for long-term investing. For the game, you want to focus on stocks that have potential for quick growth, like Builders FirstSource, but real-world investing requires a different approach. Long-term investing is about building wealth over time by managing risk, which is where diversification comes in.

Diversification means spreading your investments across different types of stocks to reduce risk. For example, an S&P 500 index fund invests in 500 of the largest companies in the U.S., giving you broad exposure to many industries. That way, if one sector—like housing—struggles, the rest of your portfolio remains stable. Long-term investing is ideal for saving for big financial goals like college or retirement, while short-term trading is more about capitalizing on quick market movements, like what you’re doing in the Stock Market Game.

Builders FirstSource is also benefiting from America’s housing shortage. According to the company, the country is “underbuilt” by between 1.7 million and 3.7 million homes. This demand for new housing means Builders has plenty of growth potential once interest rates come down and homebuilding picks up again.

In addition to its acquisitions, Builders has been buying back its own shares, which is great news for shareholders. The company has repurchased 45% of its shares since starting its buyback program three years ago. This not only increases the value of remaining shares but also shows the company’s confidence in its future. As Blayne Curtis from Jefferies points out, “Builders FirstSource’s aggressive buyback program highlights its strong financial position and potential for growth.”

So, if you’re looking for a stock that could help you dominate your Stock Market Game, Builders FirstSource is a smart pick. It’s a top stock for momentum traders who are ready to take on some risk for big rewards. Just remember, while this strategy can help you win in the short term, long-term financial success comes from diversification and careful investing.