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Cadiz Inc (CDZI): Hedge Funds Are Buying, Should You?

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Micron and Anadarko Petroleum, have not done well during the last 12 months ending in October due to various reasons. Nevertheless, the data reflects that elite investors’ consensus picks have done well on average. The top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% during the last four quarters ending in October and sixty three percent of these 30 stocks outperformed the market. S&P 500 Index returned only 5.2% during the same period and less than 49% of its constituents managed to beat this return. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Cadiz Inc (NASDAQ:CDZI) from the perspective of those elite funds.

Cadiz Inc (NASDAQ:CDZI) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of the third quarter of 2015. At the end of this article, we will also compare Cadiz Inc (NASDAQ:CDZI) to other stocks, including Layne Christensen Company (NASDAQ:LAYN), BioScrip Inc. (NASDAQ:BIOS), and Harvard Bioscience, Inc. (NASDAQ:HBIO) to get a better sense of its popularity.

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According to most traders, hedge funds are seen as worthless, old investment tools of the years past. While there are more than 8000 funds with their doors open at the moment, We hone in on the top tier of this group, around 700 funds. These money managers command the lion’s share of all hedge funds’ total asset base, and by monitoring their matchless picks, Insider Monkey has brought to light many investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy beat the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Now, we’re going to take a look at the key action encompassing Cadiz Inc (NASDAQ:CDZI).

What have hedge funds been doing with Cadiz Inc (NASDAQ:CDZI)?

Heading into Q4, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, flat over the last quarter. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Odey Asset Management Group, managed by Crispin Odey, holds the most valuable position in Cadiz Inc (NASDAQ:CDZI). Odey Asset Management Group has a $15.2 million position in the stock, comprising 1.2% of its 13F portfolio. On Odey Asset Management Group’s heels is Elkhorn Partners, managed by Alan S. Parsow, which holds a $4.1 million position; the fund has 2.6% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism comprise J. Alan Reid, Jr.’s Forward Management, Benjamin J Taylor’s Sophrosyne Capital, and Matthew Hulsizer’s PEAK6 Capital Management.

We view hedge fund selling in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Royce & Associates. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically, a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case here because only one of the 700+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Forward Management).

Let’s check out the hedge fund activity in other stocks – not necessarily in the same industry as Cadiz Inc (NASDAQ:CDZI) but similarly valued. We will take a look at Layne Christensen Company (NASDAQ:LAYN), BioScrip Inc. (NASDAQ:BIOS), Harvard Bioscience, Inc. (NASDAQ:HBIO), and Alcobra Ltd (NASDAQ:ADHD). This group of stocks’ market valuations matches Cadiz Inc (NASDAQ:CDZI)’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LAYN 9 46127 -7
BIOS 14 38623 -1
HBIO 7 7536 1
ADHD 14 73966 2

As you can see, these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $20 million in Cadiz Inc (NASDAQ:CDZI)’s case. BioScrip Inc. (NASDAQ:BIOS) is the most popular stock in this table. On the other hand, Harvard Bioscience, Inc. (NASDAQ:HBIO) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks, Cadiz Inc (NASDAQ:CDZI) is even less popular than Harvard Bioscience, Inc. (NASDAQ:HBIO). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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