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BlueLinx Holdings: Favorable Risk-Reward Profile, Downside Protection, And Attractive Entry Point Following Non-Economic Selling

Soldier of Fortune profile picture
Soldier of Fortune


  • BlueLinx Holdings is a building product distributor that represents a levered bet on a continued housing recovery.
  • The stock has been hammered in recent weeks following a secondary offering to allow a long-time PE holder to exit position.
  • The selling fund has been price insensitive given the extremely small size of the position (0.13%) in its portfolio.
  • Company is monetizing unneeded real estate that is carried on its books for well below market value, thus accelerating the debt reduction process and providing downside protection.
  • I view the risk-reward proposition as being very attractive at current levels.

One area that often presents interesting risk-reward investment propositions is highly-levered companies trading at cheap multiples and generating significant free cash flow. If this cash flow stream is sufficient to service interest payments and pay back principal, over time slowly but consistently, value will be transferred from the debt holders to the equity holders. As an added kicker, as leverage metrics decline, the market will often award the stock with a higher multiple.

These situations can be likened to a “public LBO,” as the use of debt financing and focus on cash flows is very similar to the strategies employed by many private equity firms. Another area where I’ve often discovered attractive opportunities is in stocks that have become temporarily depressed due to forced/non-economic selling, only to quickly bounce back once the overhang ends and investors refocus on business fundamentals.

One opportunity that checks both these boxes is BlueLinx Holdings (NYSE: NYSE:BXC), a North American building product distributor. While BXC has been a holding of mine for a while, recent developments have temporarily depressed the price, creating a highly attractive entry point and leading me to significantly increase my position.

Founding And Background

BXC started in 1954 as the distribution division of Georgia Pacific (GP). At the time, it had 13 distribution centers mainly for the storage and distribution of GP’s plywood products. Over time, it built up a large network of these centers throughout the country (while also expanding product lines), and over the next 50 years, it developed the largest platform of distribution warehouses nationwide. As a subsidiary of GP, many of these facilities were built with an eye toward storing excess lumber instead of just distribution, giving the facilities a larger real estate footprint – something that has become important to the investment case today.

In 2004, GP

This article was written by

Soldier of Fortune profile picture
Former analyst at a long/short value-oriented hedge fund now managing a fund of my own. I believe it's important to put your money where your mouth is when investing, so I will generally write only about stocks that I own or am likely to purchase in the near future.*Note: this account is associated with another Seeking Alpha contributor, Adestella Investment Management.

Analyst’s Disclosure: I am/we are long BXC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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