Hedge Funds Are Buying Up Badger Meter, Inc. (BMI): Why Have They Become So Bullish?

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Badger Meter, Inc. (NYSE:BMI).

Badger Meter, Inc. (NYSE:BMI) was in 14 hedge funds’ portfolios at the end of the third quarter of 2016. BMI investors should be aware of an increase in activity from the world’s largest hedge funds lately. There were 10 hedge funds in our database with BMI positions 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 Standex Int’l Corp. (NYSE:SXI), BJ’s Restaurants, Inc. (NASDAQ:BJRI), and Rouse Properties Inc (NYSE:RSE) 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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How are hedge funds trading Badger Meter, Inc. (NYSE:BMI)?

At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a 40% boost from one quarter earlier. There were a total of just 4 hedge funds with a bullish position in BMI at the beginning of this year, which has jumped by 250%. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce’s Royce & Associates has the number one position in Badger Meter, Inc. (NYSE:BMI), worth close to $15.2 million. The second largest stake is held by Impax Asset Management, led by Ian Simm, which holds a $10.4 million position. Some other hedge funds and institutional investors with similar optimism include Mario Gabelli’s GAMCO Investors, Jim Simons’ Renaissance Technologies, and Israel Englander’s Millennium Management. We should note that Impax Asset Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As aggregate interest increased, specific money managers were breaking ground themselves. Renaissance Technologies assembled the biggest position in Badger Meter, Inc. (NYSE:BMI). Renaissance Technologies had $4.4 million invested in the company at the end of the quarter. Millennium Management also made a $2.6 million investment in the stock during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel’s Two Sigma Advisors, David E. Shaw’s D E Shaw, and Paul Tudor Jones’ Tudor Investment Corp.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Badger Meter, Inc. (NYSE:BMI) but similarly valued. These stocks are Standex Int’l Corp. (NYSE:SXI), BJ’s Restaurants, Inc. (NASDAQ:BJRI), Rouse Properties Inc (NYSE:RSE), and The Ensign Group, Inc. (NASDAQ:ENSG). This group of stocks’ market caps resemble BMI’s market cap.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $46 million in BMI’s case. BJ’s Restaurants, Inc. (NASDAQ:BJRI) is the most popular stock in this table. On the other hand Rouse Properties Inc (NYSE:RSE) is the least popular one with only 1 bullish hedge fund positions. Badger Meter, Inc. (NYSE:BMI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard BJRI might be a better candidate to consider taking a long position in, though BMI should be closely watched as smart money continues to find reasons to buy it.

Disclosure: None