Is Pure Cycle Corporation (PCYO) Going to Burn These Hedge Funds?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 873 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th. In this article we look at what those investors think of Pure Cycle Corporation (NASDAQ:PCYO).

Pure Cycle Corporation (NASDAQ:PCYO) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 10 hedge funds’ portfolios at the end of June. Our calculations also showed that PCYO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare PCYO to other stocks including Landec Corporation (NASDAQ:LNDC), iBio, Inc. (NYSE:IBIO), and Lifetime Brands Inc (NASDAQ:LCUT) to get a better sense of its popularity.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s analyze the key hedge fund action surrounding Pure Cycle Corporation (NASDAQ:PCYO).

Do Hedge Funds Think PCYO Is A Good Stock To Buy Now?

At the end of June, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in PCYO over the last 24 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Plaisance Capital held the most valuable stake in Pure Cycle Corporation (NASDAQ:PCYO), which was worth $54.6 million at the end of the second quarter. On the second spot was Stadium Capital Management which amassed $4.1 million worth of shares. Renaissance Technologies, Skylands Capital, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Plaisance Capital allocated the biggest weight to Pure Cycle Corporation (NASDAQ:PCYO), around 27.18% of its 13F portfolio. Stadium Capital Management is also relatively very bullish on the stock, designating 1.96 percent of its 13F equity portfolio to PCYO.

Due to the fact that Pure Cycle Corporation (NASDAQ:PCYO) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there were a few money managers that slashed their entire stakes in the second quarter. It’s worth mentioning that Chuck Royce’s Royce & Associates said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, worth an estimated $4.2 million in stock. John W. Rogers’s fund, Ariel Investments, also cut its stock, about $2.4 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Pure Cycle Corporation (NASDAQ:PCYO) but similarly valued. We will take a look at Landec Corporation (NASDAQ:LNDC), iBio, Inc. (NYSE:IBIO), Lifetime Brands Inc (NASDAQ:LCUT), GT Biopharma, Inc. (NASDAQ:GTBP), Adicet Bio Inc. (NASDAQ:ACET), Ampio Pharmaceuticals, Inc. (NYSE:AMPE), and SuRo Capital Corp. (NASDAQ:SSSS). All of these stocks’ market caps are closest to PCYO’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.3 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $65 million in PCYO’s case. Landec Corporation (NASDAQ:LNDC) is the most popular stock in this table. On the other hand GT Biopharma, Inc. (NASDAQ:GTBP) is the least popular one with only 4 bullish hedge fund positions. Pure Cycle Corporation (NASDAQ:PCYO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PCYO is 51.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.7% in 2021 through September 27th and beat the market again by 6.2 percentage points. Unfortunately PCYO wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PCYO were disappointed as the stock returned 0.9% since the end of June (through 9/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.