Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not United Rentals, Inc. (NYSE:URI) makes for a good investment right now.
United Rentals, Inc. (NYSE:URI) has seen a decrease in hedge fund sentiment recently. URI was in 54 hedge funds’ portfolios at the end of December. There were 59 hedge funds in our database with URI positions at the end of the previous quarter. Our calculations also showed that URI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 41 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Noam Gottesman of GLG Partners
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to check out the new hedge fund action encompassing United Rentals, Inc. (NYSE:URI).
What does smart money think about United Rentals, Inc. (NYSE:URI)?
At the end of the fourth quarter, a total of 54 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in URI over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in United Rentals, Inc. (NYSE:URI) was held by Lyrical Asset Management, which reported holding $363.1 million worth of stock at the end of September. It was followed by Theleme Partners with a $262 million position. Other investors bullish on the company included GLG Partners, Viking Global, and Harbor Spring Capital. In terms of the portfolio weights assigned to each position Theleme Partners allocated the biggest weight to United Rentals, Inc. (NYSE:URI), around 14.76% of its 13F portfolio. Red Cedar Management is also relatively very bullish on the stock, setting aside 12.34 percent of its 13F equity portfolio to URI.
Due to the fact that United Rentals, Inc. (NYSE:URI) has experienced falling interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of fund managers that decided to sell off their positions entirely heading into Q4. Interestingly, David Harding’s Winton Capital Management cut the biggest position of the 750 funds followed by Insider Monkey, valued at about $12.1 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund cut about $11.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 5 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as United Rentals, Inc. (NYSE:URI) but similarly valued. These stocks are InterContinental Hotels Group PLC (NYSE:IHG), Fidelity National Financial Inc (NYSE:FNF), Cenovus Energy Inc (NYSE:CVE), and J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT). This group of stocks’ market values resemble URI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IHG | 6 | 27333 | -1 |
| FNF | 36 | 357320 | 6 |
| CVE | 31 | 578518 | 3 |
| JBHT | 28 | 321794 | 2 |
| Average | 25.25 | 321241 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $321 million. That figure was $1223 million in URI’s case. Fidelity National Financial Inc (NYSE:FNF) is the most popular stock in this table. On the other hand InterContinental Hotels Group PLC (NYSE:IHG) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks United Rentals, Inc. (NYSE:URI) is more popular among hedge funds. 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 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately URI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on URI were disappointed as the stock returned -40.7% during the first two months of 2020 (through March 9th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
