According to a recently filed 13G form with the SEC, Richard McGuire‘s Marcato Capital Management has added another 2.37 million shares to its Avis Budget Group Inc. (NASDAQ:CAR) holding, taking the total stake to 5.72 million shares valued at $234.97 million, based on the yesterday’s closing price. The position now amasses about 5.4% of the $4.46 billion vehicle rental company’s outstanding shares.
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McGuire worked for renowned activist Bill Ackman’s Pershing Square prior to establishing Marcato Capital Management in 2010. The fund primarily invests in small and mid-sized companies in the real estate and consumer goods industries. Marcato’s public equity portfolio was valued at just under $2.70 billion on March 31, and was 60% invested in finance (including real estate) and consumer discretionary stocks.
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An everyday investor does not have the time or the required skill-set to carry out an in-depth analysis of equities and identify companies with the best future prospects like a fund with the knowledge and resources of Marcato can. However, it is also not a good idea to pay the egregiously high fees that investment firms charge for their stock picking expertise. Thus a retail investor is better off to monkey the most popular stock picks among hedge funds by him or herself. But not just any picks mind you. Our research has shown that a portfolio based on hedge funds’ top stock picks (which are invariably comprised entirely of large-cap companies) falls considerably short of a portfolio based on their best small-cap stock picks. The most popular large-cap stocks among hedge funds underperformed the market by an average of seven basis points per month in our back tests whereas the 15 most popular small-cap stock picks among hedge funds outperformed the market by nearly a percentage point per month over the same period between 1999 and 2012. Since officially launching our small-cap strategy in August 2012 it has performed just as predicted, beating the market by over 80 percentage points and returning over 139%, while hedge funds themselves have collectively underperformed the market (read the details here).
McGuire is certainly not following the herd as far this investment is concerned. The hedge fund interest in the company dropped significantly during the first three months. Among the funds that we track, 43 had invested a total of $3.06 billion into Avis Budget Group Inc. (NASDAQ:CAR) at the end of March compared to 51 funds with $3.92 billion at the end of the previous quarter. The drop in investments came against the backdrop of an 11.4% slide in the company’s stock price during the first trimester. However, the slump didn’t quite stop there, as the stock has depreciated by about 38% year-to-date. Although the rental and leasing services industry hasn’t performed all that well either and is down by about 1.9% year-to-date, the slide is meager compared to Avis Budget Group Inc. (NASDAQ:CAR)’s.
Now let us delve deeper into what has affected the fortunes of Avis Budget Group Inc. (NASDAQ:CAR) and how the situation is about is about to change.
The factors weighing heavily on Avis Budget Group Inc. (NASDAQ:CAR)’s stock price include a first quarter revenue miss leading to a net loss of $9 million compared to a $4 million profit in the same quarter last year, and also the entrance of other companies into the car rental space, like Ford Motor Company (NYSE:F) with its peer-to-peer car sharing “Getaround”, which has been launched in six U.S. cities.
However, there are certain catalysts that suggest that the stock price might have bottomed out and is going to recover. Avis Budget Group Inc. (NASDAQ:CAR) has embarked on a global strategic plan to add weight to its top line. In June the company signed multi-year marketing deals with JetBlue Airways Corporation and Southwest Airlines Company. Moreover, it has also recently expanded its car sales program to Minnesota and Washington, offering those states’ residents attractive deals on the purchase of Avis Car Rental and Budget Car Rental’s latest vehicles. In light of these developments, Deutsche bank upgraded the company to a ‘Buy’ rating this month, though it revised its price target down to $60 from $65, which nonetheless provides for nearly 50% upside given the stock’s recent slide.
The two largest stockholders of the company within our database hoping for such upside to be realized are Karthik Sarma‘s SRS Investment Management and Larry Robbins‘ Glenview Capital, with respective holdings of 10.0 million shares valued at $590.15 million and 7.09 million shares valued at $418.60 million.
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