David Nierenberg’s Nierenberg Investment Management Reduces Exposure to its Largest Holding

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David Nierenberg’s Nierenberg Investment Management reduced its stake in Electro Scientific Industries, Inc. (NASDAQ:ESIO) at the end of January by around 253,000 shares. According to the 13D Form filed with the U.S. Securities and Exchange Commission, the fund now holds a position of 2.7 million Common Shares, representing 9.1% of the company’s oustanding stock.

David Nierenberg Investment Management

Nierenberg Investment Management was founded by David Nierenberg in 1996 and is currently headquartered in Camas, Washington. The investment firm also manages the D3 Family Funds, which focuses on equities with a market capitalization between $50 million and $300 million, also known as micro-cap stocks. By dealing with smaller companies, the firm can gain more access to upper-management, engaging in collaborative discussions, rather than employing an aggressive activist approach. Furthermore, micro-cap stocks are often mispriced and neglected by analysts and major financial institutions, thus allowing the fund to profit from well-timed trades. According to its latest 13F filing, Nierenberg Investment Management has around $305 million in assets under management, while its 13F equity portfolio, which is made up primarily of stocks from the information technology and energy sector, was valued at $81.6 million. In addition to Electro Scientific Industries, the investment firm’s top 3 picks as of the end of the third quarter of 2014, included C&J Energy Services Inc (NYSE:CJES) and Rosetta Stone Inc (NYSE:RST). The combined value of these three equities represented around 65% of the fund’s equity portfolio at the time.

Electro Scientific Industries, Inc. (NASDAQ:ESIO) was Nierenberg Investment Management’s largest position during the third quarter, accounting for a quarter of its equity portfolio. Before the recent sale of 253,000 shares, the fund was also the largest institutional investor backing the $191 million market cap company. Mr. Nierenberg’s firm has been betting on Electro Scientific Industries for several years, although the equity has not been performing very well. In fact, the stock dropped around 42% over the past year, and has yet to show signs of improvement. In fact, the company reported a loss of $6.4 million in its fiscal third quarter, representing a loss per share of $0.15, after factoring in stock option expenses and acquisitions-related costs. Following the announcement, share prices plummeted, dropping by 16% over the next 2 days.

Although Nierenberg Investment Management was amongst those who decided to decrease their stake in Electro Scientific Industries, Inc. (NASDAQ:ESIO) at the end of the month, the fund continues to own a great deal of stock. Considering it is still the company’s second largest institutional investor, the investment firm seems optimistic regarding the stock’s long-term growth potential. During the second quarter of 2013, the equity experienced a sharp increase in hedge fund and insider trading and several renowned hedge fund managers increase their holdings significantly.

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