Laughing Water Capital bets on Lifecore Biomedical sale as fund posts 39.8% quarterly return

Laughing Water Capital released its second-quarter 2026 investor letter on Tuesday, reporting a 39.8% net return for its Class A investment. The performance brought the fund’s year-to-date return to approximately 33.6%, significantly outpacing the S&P 500 Total Return Index, which gained 15.0%, and the Russell 2000, which rose 21.5% during the same period. The firm attributed its strong results to three of its top five positions, with its largest holding nearly doubling in value over the quarter.

A central focus of the letter was Lifecore Biomedical Inc (NASDAQ: LFCR), an integrated contract development and manufacturing organisation specialising in the aseptic fill and finish of sterile injectable pharmaceuticals and medical devices. Laughing Water Capital noted that the company continues to secure new business contracts despite a lack of interest from the broader market. The investment manager anticipates that as these new wins translate into revenue, significant operating leverage will drive substantial cash generation for the firm.

The market reaction to Lifecore Biomedical has been notably negative. As of July 14, 2026, the company’s shares closed at $4.61, valuing the business at a market capitalisation of $172.92 million. The stock has declined 39.97% over the past 52 weeks and posted a one-month return of -16.49%. Institutional ownership has also contracted, with 17 hedge fund portfolios holding Lifecore Biomedical at the end of the first quarter, down from 19 in the previous quarter.

Following the close of the second quarter, Lifecore Biomedical filed an 8-K disclosure indicating that holders of Series A Preferred Stock were redeeming their shares. The filing also confirmed that the company is evaluating strategic alternatives, which may include a potential sale. Laughing Water Capital stated in its letter that it believes a sale of the company is likely in the “not-too-distant future,” citing the company’s under-utilised capacity and consistent contract wins as catalysts for an acquisition.

While the firm highlighted the potential for Lifecore Biomedical to generate significant cash flow, it also noted that the stock is not among the 40 most popular stocks among hedge funds heading into 2026. The investment manager suggested that while Lifecore offers upside potential, other sectors such as artificial intelligence may present greater opportunities with less downside risk, though it maintains its conviction in the contract manufacturer’s ability to deliver value through operational leverage and a potential corporate transaction.