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Hedge Funds Have Never Been This Bullish On Pure Cycle Corporation (PCYO)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Pure Cycle Corporation (NASDAQ:PCYO) based on that data.

Pure Cycle Corporation (NASDAQ:PCYO) was in 14 hedge funds’ portfolios at the end of March. PCYO has seen an increase in activity from the world’s largest hedge funds recently. There were 10 hedge funds in our database with PCYO positions at the end of the previous quarter. Our calculations also showed that PCYO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Reeder PAR Capital Management

Paul Reeder of PAR Capital ManagementPaul Reeder

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to analyze the key hedge fund action encompassing Pure Cycle Corporation (NASDAQ:PCYO).

What have hedge funds been doing with Pure Cycle Corporation (NASDAQ:PCYO)?

Heading into the second quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 40% from one quarter earlier. On the other hand, there were a total of 6 hedge funds with a bullish position in PCYO a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, PAR Capital Management held the most valuable stake in Pure Cycle Corporation (NASDAQ:PCYO), which was worth $21.9 million at the end of the third quarter. On the second spot was Trigran Investments which amassed $5 million worth of shares. Royce & Associates, Ariel Investments, 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 Trigran Investments allocated the biggest weight to Pure Cycle Corporation (NASDAQ:PCYO), around 1.1% of its 13F portfolio. PAR Capital Management is also relatively very bullish on the stock, earmarking 0.93 percent of its 13F equity portfolio to PCYO.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in Pure Cycle Corporation (NASDAQ:PCYO). Arrowstreet Capital had $2.3 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.5 million investment in the stock during the quarter. The following funds were also among the new PCYO investors: Noam Gottesman’s GLG Partners and Greg Eisner’s Engineers Gate Manager.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Pure Cycle Corporation (NASDAQ:PCYO) but similarly valued. These stocks are Ethan Allen Interiors Inc. (NYSE:ETH), BJ’s Restaurants, Inc. (NASDAQ:BJRI), McEwen Mining Inc (NYSE:MUX), and Sterling Construction Company, Inc. (NASDAQ:STRL). This group of stocks’ market caps match PCYO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ETH 12 19656 -2
BJRI 13 14101 -3
MUX 8 4470 -4
STRL 14 34308 -1
Average 11.75 18134 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $40 million in PCYO’s case. Sterling Construction Company, Inc. (NASDAQ:STRL) is the most popular stock in this table. On the other hand McEwen Mining Inc (NYSE:MUX) is the least popular one with only 8 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. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately PCYO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PCYO were disappointed as the stock returned -18.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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