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Is Middlesex Water Company (MSEX) A Good Stock To Buy?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Middlesex Water Company (NASDAQ:MSEX) was in 7 hedge funds’ portfolios at the end of the third quarter of 2016. MSEX investors should be aware of a decrease in hedge fund sentiment of late. There were 9 hedge funds in our database with MSEX positions at the end of the previous quarter. At the end of this article we will also compare MSEX to other stocks including Encore Capital Group, Inc. (NASDAQ:ECPG), AeroVironment, Inc. (NASDAQ:AVAV), and Epizyme Inc (NASDAQ:EPZM) to get a better sense of its popularity.

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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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With all of this in mind, we’re going to go over the key action encompassing Middlesex Water Company (NASDAQ:MSEX).

Hedge fund activity in Middlesex Water Company (NASDAQ:MSEX)

At Q3’s end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MSEX over the last 5 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

HedgeFund

Of the funds tracked by Insider Monkey, Renaissance Technologies, one of the biggest hedge funds in the world, holds the largest position in Middlesex Water Company (NASDAQ:MSEX). Renaissance Technologies has a $14.6 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Ian Simm of Impax Asset Management, with a $6.8 million position; 0.3% of its 13F portfolio is allocated to the company. Some other peers with similar optimism encompass Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Cliff Asness’s AQR Capital Management and Mario Gabelli’s GAMCO Investors. 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.

Due to the fact that Middlesex Water Company (NASDAQ:MSEX) has weathered declining sentiment from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of hedge funds that decided to sell off their entire stakes heading into Q4. Intriguingly, Israel Englander’s Millennium Management cashed in the biggest position of all the hedgies studied by Insider Monkey, worth about $1.4 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also dumped its call options, about $0.9 million worth.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Middlesex Water Company (NASDAQ:MSEX) but similarly valued. We will take a look at Encore Capital Group, Inc. (NASDAQ:ECPG), AeroVironment, Inc. (NASDAQ:AVAV), Epizyme Inc (NASDAQ:EPZM), and PDF Solutions, Inc. (NASDAQ:PDFS). All of these stocks’ market caps are similar to MSEX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ECPG 6 69117 0
AVAV 5 21627 -1
EPZM 14 64785 2
PDFS 12 89329 -5

As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $31 million in MSEX’s case. Epizyme Inc (NASDAQ:EPZM) is the most popular stock in this table. On the other hand AeroVironment, Inc. (NASDAQ:AVAV) is the least popular one with only 5 bullish hedge fund positions. Middlesex Water Company (NASDAQ:MSEX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard EPZM might be a better candidate to consider taking a long position in.