Think of EDGAR, the Securities and Exchange Commission's massive database of financial disclosure documents, as Google (NASDAQ:GOOG) for investors. An EDGAR search for the right 13D filings, required for investments of 5% or more in public companies, can help to reveal what the "smart money" is doing.
Small-cap manager David Nierenberg made a particularly interesting filing last week. He purchased 580,000 shares of Brooks Automation (NASDAQ:BRKS) -- roughly 5% of the company -- making Nierenberg its second-largest shareholder.
Founded in 1978, Brooks Automation is a software and services provider that helps semiconductor manufacturers get products to market faster and more profitably. Unfortunately, it's been a tough business lately. In its most recent completed quarter, Brooks Automation posted a 36.4% decrease in revenues, to $103.3 million. There was also a net loss of $7.6 million, or $0.17 per share.
So why would Nierenberg want to put money behind this company? Thankfully, a 13-D also states the investment's intended purpose.
First, Nierenberg believes that Brooks Automation shareholders have been frustrated with the erratic performance of the company and, as a result, have been dumping shares. He also believes there has been downward pressure on the stock because of the acquisition of Helix. A former major Helix shareholder apparently sold his eight-million-share stake. Furthermore, there may also be some tax selling (which is normal at the end of the year).
However, the pressure to sell appears to have abated. Thus, according to Nierenberg, the current valuation is attractive -- especially since he sees conditions improving at the company as it gains share in its core market. Brooks Automation has also made headway in reducing costs, which has improved free cash flow.
Nierenberg also thinks the semiconductor business may be poised for a comeback, in light of Christmas retail sales and the launch of hot new electronic consumer products such as Motley Fool Inside Value pick Microsoft's (NASDAQ:MSFT) Xbox 360 and Apple's (NASDAQ:AAPL) iPod nano.
However, the Brooks Automation board has not responded to Nierenberg's concerns. In fact, he says he may launch a proxy fight if he is not satisfied with the company -- which could ultimately lead to its sale. Nierenberg mentions vague concerns regarding corporate governance at Brooks Automation, arguing that the company's board needs to be changed. (He sent an undisclosed letter to management on this matter.)
Like any investment technique, following the "smart money" is often far from a perfect strategy. But 13-Ds like Nierenberg's can certainly be good starting points for eventual investment ideas.
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Fool contributor Tom Taulli does not own shares mentioned in this article.
