Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Pure Cycle Corporation (NASDAQ:PCYO) to find out whether there were any major changes in hedge funds’ views.
Is PCYO a good stock to buy now? The best stock pickers were cutting their exposure. The number of bullish hedge fund bets fell by 3 lately. Pure Cycle Corporation (NASDAQ:PCYO) was in 11 hedge funds’ portfolios at the end of September. The all time high for this statistics is 14. Our calculations also showed that PCYO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 14 hedge funds in our database with PCYO holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. With all of this in mind we’re going to take a gander at the fresh hedge fund action encompassing Pure Cycle Corporation (NASDAQ:PCYO).
Do Hedge Funds Think PCYO Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the second quarter of 2020. By comparison, 7 hedge funds held shares or bullish call options in PCYO a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Plaisance Capital was the largest shareholder of Pure Cycle Corporation (NASDAQ:PCYO), with a stake worth $34.2 million reported as of the end of September. Trailing Plaisance Capital was PAR Capital Management, which amassed a stake valued at $9 million. Ariel Investments, Renaissance Technologies, and Royce & Associates 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 54.96% of its 13F portfolio. PAR Capital Management is also relatively very bullish on the stock, designating 0.34 percent of its 13F equity portfolio to PCYO.
Seeing as Pure Cycle Corporation (NASDAQ:PCYO) has experienced bearish sentiment from the smart money, logic holds that there lies a certain “tier” of funds who sold off their entire stakes heading into Q4. Interestingly, Douglas T. Granat’s Trigran Investments dumped the biggest investment of the 750 funds watched by Insider Monkey, comprising close to $2.4 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund cut about $0.5 million worth. These moves are interesting, as aggregate hedge fund interest fell by 3 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks similar to Pure Cycle Corporation (NASDAQ:PCYO). These stocks are Hersha Hospitality Trust (NYSE:HT), LogicBio Therapeutics, Inc. (NASDAQ:LOGC), Fathom Holdings Inc. (NASDAQ:FTHM), Haynes International, Inc. (NASDAQ:HAYN), Alico, Inc. (NASDAQ:ALCO), PennantPark Investment Corp. (NASDAQ:PNNT), and MICT, Inc. (NASDAQ:MICT). All of these stocks’ market caps are similar to PCYO’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 6.9 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $56 million in PCYO’s case. Haynes International, Inc. (NASDAQ:HAYN) is the most popular stock in this table. On the other hand MICT, Inc. (NASDAQ:MICT) is the least popular one with only 2 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 63.1. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on PCYO as the stock returned 21.1% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.