The secretive world of Vanguard’s active mutual funds has been gradually drawing more attention. With a whopping $13 billion in assets under management, the AI-driven strategy garners investor interest. As Scott Rodemer, the head of factor-based strategies at Vanguard, puts it, “What we want to do here is represent the process that we believe in, which is a fundamentally driven quant process.”
Builders FirstSource (BLDR)
Builders FirstSource (NYSE:BLDR) is the leading stock pick, with a market value of $67.1 million. The Texas-based building materials manufacturer and supplier has been riding high on the recent housing construction boom, making its shares soar by nearly 12% in 2024, 124% over the past year, and a whopping 1,254% over the past five years.
In its ambitious four-year plan from 2022 to 2025, Builders FirstSource aimed to deploy between $7 billion and $10 billion in capital toward scaling up the business and rewarding shareholders. Impressively, by September 30, 2023, it had already deployed $5.7 billion, with $4.2 billion allocated to share buybacks.
The company’s robust growth is evident as its shares outstanding increased from 33.42 million to 123.35 million, along with a revenue surge from $2.34 billion to $12.95 billion over the first nine months of the fiscal year.
Although trading at 9.2x cash flow and 14.56x its forward earnings, Builders FirstSource stock might not come cheap, but the company’s remarkable growth sets it apart.
Owens Corning (OC)
Owens Corning (NYSE:OC) emerges as the fourth-largest holding of VSEQX, with a market value of $56.9 million. Despite being best known for its insulation products in homes, it also offers laminate and strip asphalt roofing shingles and glass fiber materials for various applications.
On February 9, Owens Corning announced its $3.9 billion acquisition of Masonite (NYSE:DOOR), specializing in doors and door systems. This move positions Owens Corning to compete more directly with Builders FirstSource, an expansion that promises a substantial share in the industry.
The synergistic acquisition empowers the combined entity with $12.6 billion in annual revenue and an adjusted EBITDA of $2.9 billion, translating to a healthy 23% margin. Owens Corning’s 2023 results, unveiled on February 14, boasted $9.7 billion in revenue, adjusted earnings per share of $14.42, and $1.2 billion in free cash flow.
With an enterprise value of $14.96 billion, Owens Corning’s free cash flow yield stands at 8.0%, signaling strong intrinsic value.
MGIC Investment (MTG)
MGIC Investment: A Diamond in the Rough for Investors
Mortgage Guaranty Insurance Corporation Investment (NYSE: MTG) is no doubt a gem hidden in plain sight for investors, as it is the 14th-largest holding of VSEQX, with a market value of $50.3 million.
A Vintage Player with Time-Tested Products
Back in April 2023, I fervently recommended MGIC and two other bargain stocks that had the potential to skyrocket in value. MGIC, through its subsidiary, Mortgage Guarantee Insurance Corporation, has been providing private mortgage insurance and other mortgage credit risk solutions for almost seven decades, safeguarding home buyers and loan providers alike through its top-notch products. Most notably, the company has achieved this feat while consistently generating robust profits.
Weathering the 2023 Financial Storm with Resilience
Despite a 4.8% decrease in net premiums written and a 1.5% drop in revenues to $915.0 million and $1.16 billion, respectively, in 2023, MGIC still managed to report a net income of $712.9 million, which constitutes a commendable 62% of its revenue. While it’s true that its net margin lags behind the impressive 86% recorded in 2022, this was mainly due to a significant reduction in delinquencies by homeowners.
Rising house prices over the past few years have allowed numerous homeowners to resolve their delinquency issues by selling their homes, thereby mitigating this challenge. Even though premiums saw a decline in 2023 due to higher interest rates, MGIC’s net investment income rose to $214.7 million, marking a substantial 28.2% increase from 2022.
A Valuable Investment Opportunity
Remarkably, MGIC is currently trading at just 7.2 times its 2023 net earnings, despite witnessing a 36% surge in its share price since last April. In addition, the company offers a healthy yield of 2.4%, making it an enticing prospect for investors seeking value opportunities.
