Are Hedge Funds Right to be So Bullish on Itron, Inc. (ITRI)?

The elite funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Itron, Inc. (NASDAQ:ITRI) from the perspective of those elite funds.

Itron, Inc. (NASDAQ:ITRI) investors should be aware of an increase in hedge fund sentiment lately. ITRI was in 19 hedge funds’ portfolios at the end of September. There were 16 hedge funds in our database with ITRI holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Financial Engines Inc (NASDAQ:FNGN), Magellan Health Services Inc (NASDAQ:MGLN), and Columbia Banking System Inc (NASDAQ:COLB) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Hedge fund activity in Itron, Inc. (NASDAQ:ITRI)

At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 19% rise from the previous quarter, which comes after 3 quarters of nearly no movement in the stock’s ownership among hedge funds. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Matt Sirovich and Jeremy Mindich’s Scopia Capital has the most valuable position in Itron, Inc. (NASDAQ:ITRI), worth close to $254.2 million, corresponding to 4.5% of its total 13F portfolio. The second most bullish fund manager is Ian Simm of Impax Asset Management, with an $84.9 million position; the fund has 3.9% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions include Jim Simons’ Renaissance Technologies, Israel Englander’s Millennium Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the biggest position in Itron, Inc. (NASDAQ:ITRI). Adage Capital Management had $5.6 million invested in the company at the end of the quarter. Peter Algert and Kevin Coldiron’s Algert Coldiron Investors also made a $1.3 million investment in the stock during the quarter. The following funds were also among the new ITRI investors: Ken Griffin’s Citadel Investment Group and Joel Greenblatt’s Gotham Asset Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Itron, Inc. (NASDAQ:ITRI) but similarly valued. We will take a look at Financial Engines Inc (NASDAQ:FNGN), Magellan Health Services Inc (NASDAQ:MGLN), Columbia Banking System Inc (NASDAQ:COLB), and Kaiser Aluminum Corp. (NASDAQ:KALU). This group of stocks’ market values are closest to ITRI’s market value.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $448 million in ITRI’s case. Magellan Health Services Inc (NASDAQ:MGLN) is the most popular stock in this table. On the other hand Columbia Banking System Inc (NASDAQ:COLB) is the least popular one with only 6 bullish hedge fund positions. Itron, Inc. (NASDAQ:ITRI) is tied as the most popular stock in this group and has more money invested in it than any of those stocks. This is a positive signal, as we’d rather spend our time researching stocks that hedge funds are loading up on. In this regard ITRI might be a good candidate to consider a long position in.

Disclosure: None