Billionaires Rosenstein and Ubben Sell These 2 Stocks; Teton Capital Buys More Shares of A Struggling Company

Powerful macroeconomic forces have been driving up the U.S. equity markets over the past several years, so the hedge fund industry has had a hard time beating the broader market on aggregate. Thus, it is inadequate to blame hedge fund managers for their poor performance in recent years and some tend to attribute their underperformance to increased focus on the same stocks, suggesting that they attempted to blindly ride the bull market. Meanwhile, the Federal Reserve is anticipated to raise interest rates quite soon, which will most likely increase the impact of corporate fundamentals on the direction of equities. Hence, smart money investors will get the chance to prove their strong stock picking abilities and show the worth of their highly-educated research teams in the forthcoming years. At the end of the day, they are known for accurately pinning down strong businesses with great potential. That said, this article will discuss several freshly-submitted filings with the SEC by three hedge fund firms monitored by Insider Monkey.

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

According to freshly-amended 13D filing, Barry Rosenstein’s JANA Partners currently owns a stake of 21.67 million shares in Hertz Global Holdings Inc. (NYSE:HTZ), which account for 4.9% of the company’s outstanding common stock. This denotes a decrease of 17.52 million shares from the position revealed through the latest round of 13Fs. The car rental company has seen its shares decline 40% thus far in 2015, which might have propelled JANA Partners to cash out a portion of its stake in the company. Hertz Global Holdings Inc. (NYSE:HTZ)’s third-quarter revenue totaled $2.98 billion, down $145 million or 5% relative to the same quarter last year. The fast-increasing competition within the car rental business has pushed Hertz to cut rental rates, which stands behind the disappointing financial and stock performance. However, the company’s rental volume remained flat year-on-year, as the increase in airport volume was entirely offset by the decrease in off airport volume, which was in turn affected by the closure of 200 stores during 2015. The currency exchange rates adversely impacted Hertz’s financial figures throughout the year as well.

The car rental company lost its appeal among the hedge funds tracked by our team during the third quarter, as the number of smart money investors with long positions in the struggling company shrank to 54 from 67. Similarly, the value of their positions declined to $3.48 billion from $4.06 billion quarter-on-quarter. It is also worth pointing out that these investors accumulated 45.40% of the company’s outstanding shares on September 30. Billionaire Carl Icahn holds a 51.92 million-share position in Hertz Global Holdings Inc. (NYSE:HTZ) as of the end of the third quarter.

Let’s head to the second page of the article, where we reveal the moves made by ValueAct Capital and Teton Capital.

As stated in a Form 4 filing, Jeffrey Ubben’s ValueAct Capital sold 650,000 shares of Msci Inc. (NYSE:MSCI) on Monday and Tuesday at a weighted average price of $69.98, trimming its overall holdings in the company to 6.33 million shares. The shares of the provider of portfolio construction and risk management tools and services are up 46% for the year, and are trading at a relatively rich trailing price-to-earnings ratio of 36.65, which compares with the ratio of 23.18 for the S&P 500 Index. Msci Inc. (NYSE:MSCI) has invested substantial amounts of capital towards expanding its operating functions and infrastructure in order to accelerate its top- and bottom-line growth. The company’s investment growth has exceeded the growth of its revenue in recent years, which has in turn impacted its operating profit. For example, MSCI’s revenues increased by an annual 9.1% in 2014, whereas its operating income shrank by 0.9% relative to the same period. The company’s total operating revenues added up to $268.8 million for the third quarter of 2015, up by 6.8% year-over-year. Leaving MSCI’s financial performance aside, it appears that ValueAct is taking some profits off the table from its long-term investment in the company.

Meanwhile, the smart money sentiment was positive on MSCI in the third quarter, as the number of hedge funds invested in the company inched up to 26 from 24 during the three-month period. Nevertheless, the value of their investments shrank to $1.07 billion from $1.19 billion. Anand Desai’s Darsana Capital Partners owns 1.60 million shares in Msci Inc. (NYSE:MSCI) as of September 30.

In a separate Form 4 filing, Quincy J. Lee’s Teton Capital Partners has reported acquiring 57,916 class B shares of Rush Enterprises Inc. (NASDAQ:RUSHB) at $22.65 apiece, boosting its stake to nearly 1.11 million shares. The struggling energy industry has affected the business operations of this full-service retailer of commercial vehicles and related services quite significantly. The stock is 28% in the red year-to-date, but it is trading at an appealing trailing P/E ratio of only 11.69. Rush Enterprises Inc. (NASDAQ:RUSHB)’s gross margins from truck lease and rental sales equaled 10.7% in the September quarter, down from the 15.2% figure reported a year ago. This substantial decrease was mainly attributable to the sluggish activity in the energy sector. Even so, the company’s strong sales of Class 4 through 7 vehicles, fast-increasing fleet business and revenues from Aftermarket Services from the non-energy focused regions offset some of the sustained decline in energy sector activity.

Despite the cheap trailing P/E ratio of the company, Rush Enterprises lost some of its charm within the hedge fund industry during the third quarter. The number of hedge funds with positions in the company decreased to 11 from 16 quarter-over-quarter, while the value of these positions shrank to $25.93 million from $33.20 million. SG Capital Management, founded by Ken Grossman and Glen Schneider, added a 285,674-share position in Rush Enterprises Inc. (NASDAQ:RUSHA) to its equity portfolio during the September quarter.

Disclosure: None