Is Barrett Business Services, Inc. (BBSI) Going to Burn These Hedge Funds?

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: Barrett Business Services, Inc. (NASDAQ:BBSI).

Barrett Business Services, Inc. (NASDAQ:BBSI) was in 11 hedge funds’ portfolios at the end of the third quarter of 2015. BBSI shareholders have witnessed an increase in enthusiasm from smart money recently. There were 10 hedge funds in our database with BBSI 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 STAAR Surgical Company (NASDAQ:STAA), KongZhong Corporation(ADR) (NASDAQ:KZ), and Era Group Inc (NYSE:ERA) to gather more data points.

According to most investors, hedge funds are assumed to be slow, outdated investment vehicles of years past. While there are greater than 8000 funds in operation at present, We choose to focus on the upper echelon of this group, around 700 funds. Most estimates calculate that this group of people control the majority of the hedge fund industry’s total asset base, and by tracking their best stock picks, Insider Monkey has revealed several investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Keeping this in mind, let’s analyze the new action encompassing Barrett Business Services, Inc. (NASDAQ:BBSI).

Hedge fund activity in Barrett Business Services, Inc. (NASDAQ:BBSI)

Heading into Q4, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, an increase of 10% from the second quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Jim Simons’ Renaissance Technologies has the largest position in Barrett Business Services, Inc. (NASDAQ:BBSI), worth close to $3.8 million, corresponding to less than 0.1%% of its total 13F portfolio. On Renaissance Technologies’s heels is Mark Coe’s Coe Capital Management, with a $2.9 million position; 1.1% of its 13F portfolio is allocated to the company. The remaining members of the smart money with similar optimism contain Israel Englander’s Millennium Management, PEAK6 Capital Management, managed by Matthew Hulsizer, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

As one would reasonably expect, specific money managers have been driving this bullishness. PEAK6 Capital Management assembled the biggest call position in Barrett Business Services, Inc. (NASDAQ:BBSI). PEAK6 Capital Management had $1.3 million invested in the company at the end of the quarter. Algert Coldiron Investors also made a $1.1 million investment in the stock during the quarter. The other funds with brand new BBSI positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Ken Griffin’s Citadel Investment Group, and Ken Griffin’s Citadel Investment Group.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Barrett Business Services, Inc. (NASDAQ:BBSI) but similarly valued. We will take a look at STAAR Surgical Company (NASDAQ:STAA), KongZhong Corporation (ADR) (NASDAQ:KZ), Era Group Inc (NYSE:ERA), and Adamas Pharmaceuticals Inc (NASDAQ:ADMS). This group of stocks’ market values resemble BBSI’s market value.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $50 million, higher than the $14 million in BBSI’s case. Adamas Pharmaceuticals Inc (NASDAQ:ADMS) is the most popular stock in this table. On the other hand KongZhong Corporation(ADR) (NASDAQ:KZ) is the least popular one with only 4 bullish hedge fund positions. Barrett Business Services, Inc. (NASDAQ:BBSI) 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 ADMS might be a better candidate to consider a long position.