Choice Equities Capital Management, a hedge fund manager, released its fourth-quarter 2023 investor letter recently. You can view it here. In the fourth quarter, the fund generated gains of +10.6% on a net basis bringing year-to-date net performance to +3.0% in comparison to the Russell 2000's quarterly gain of 14.0% and YTD gain of 16.9%, and the S&P 500’s 11.7% and +26.3% gains, respectively for the quarter and YTD. Since its inception in 2017, the fund has generated an annualized gain of 13.4%, compared to 7.3% and 13.4% returns for the indexes, respectively. Stocks rose sharply in Q4 as disinflationary data prompted the Fed to halt its 40-year aggressive rate hikes. This led to a relief rally in most asset classes due to expectations of lower rates. In addition, please check the fund’s top five holdings to know its best picks in 2023.

Choice Equities Capital Management featured stocks such as BlueLinx Holdings Inc. (NYSE:BXC) in the Q4 2023 investor letter. Headquartered in Marietta, Georgia, BlueLinx Holdings Inc. (NYSE:BXC) is a building products distributor. On February 2, 2024, BlueLinx Holdings Inc. (NYSE:BXC) stock closed at $117.35 per share. One-month return of BlueLinx Holdings Inc. (NYSE:BXC) was 4.22%, and its shares gained 31.74% of their value over the last 52 weeks. BlueLinx Holdings Inc. (NYSE:BXC) has a market capitalization of $1.029 billion.

Choice Equities Capital Management stated the following regarding BlueLinx Holdings Inc. (NYSE:BXC) in its fourth quarter 2023 investor letter:

"BlueLinx Holdings Inc. (NYSE:BXC) is a company we have owned before and one that looks quite different today than it did prior to the pandemic. As a building products distributor delivering primarily lumber and millwork and various engineered wood products that go in new homes and support repair and remodeling needs, the company fulfills a major need in the homebuilding supply chain.

Over the last couple of years, two major changes have occurred. The company has flipped their product mix (from previously ~80/20% structural/specialty to ~30/70% structural/specialty today. Structural product gross margins (primarily lumber) range from 8% – 10%. Specialty gross margins (primarily engineered wood products and millwork, etc.) range from 17% – 19%. With the two product categories requiring similar costs to serve and offering comparable pull-through margins, the company now aspires to achieve an EBITDA margin of 10%, versus a pre-pandemic aspiration of 5%. Additionally, pre-Covid, the balance sheet was levered, though the company was asset rich. Today on the back of the Covid boom, the balance sheet is now in great shape. The company recently repurchased 15% of its shares, and just put another share repurchase authorization in place for a similar amount.

Depending on the level of share shrink from the buyback and assuming topline volumes grow in the mid/high single digits on the back of similar single-family housing starts growth, earnings could again inflect meaningfully higher, perhaps surpassing $25 in a couple years."