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Stock Strategist

Seeking Small-Cap Moats: Badger Meter

Flow measurement company Badger Meter's long growth runway and likely narrow moat make it a promising name for patient investors.

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This article is part of Todd's monthly series "Seeking Small Caps With Moats." The introductory article can be found here. New articles in the series are published on the fourth Wednesday of every month.

One of my favorite small-cap investing approaches comes from  Akre Focus Fund (AKREX) manager Chuck Akre, who searches for "three-legged stools"--that is, firms with high returns on capital and pricing power (economic moats), able management teams, and the ability to reinvest extra cash in high-return projects over long periods of time. Akre calls firms that pass all three tests "compounding machines," and the smaller the company and the longer its growth runway, the better, as this provides more time for compounding at high rates. 

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Todd Wenning does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.