Were Hedge Funds Right About United Rentals, Inc. (URI)?

In this article we are going to use hedge fund sentiment as a tool and determine whether United Rentals, Inc. (NYSE:URI) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

United Rentals, Inc. (NYSE:URI) shareholders have witnessed an increase in hedge fund sentiment lately. United Rentals, Inc. (NYSE:URI) was in 47 hedge funds’ portfolios at the end of June. The all time high for this statistic is 59. Our calculations also showed that URI isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to review the new hedge fund action surrounding United Rentals, Inc. (NYSE:URI).

Do Hedge Funds Think URI Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the first quarter of 2020. On the other hand, there were a total of 40 hedge funds with a bullish position in URI a year ago. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

More specifically, Lyrical Asset Management was the largest shareholder of United Rentals, Inc. (NYSE:URI), with a stake worth $469.2 million reported as of the end of June. Trailing Lyrical Asset Management was Pelham Capital, which amassed a stake valued at $116.8 million. Holocene Advisors, Citadel Investment Group, and Arrowstreet Capital 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 Pelham Capital allocated the biggest weight to United Rentals, Inc. (NYSE:URI), around 6.91% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, earmarking 5.68 percent of its 13F equity portfolio to URI.

Consequently, key money managers were leading the bulls’ herd. Citadel Investment Group, managed by Ken Griffin, established the biggest position in United Rentals, Inc. (NYSE:URI). Citadel Investment Group had $28.9 million invested in the company at the end of the quarter. Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital also made a $25.5 million investment in the stock during the quarter. The other funds with brand new URI positions are Alexander Mitchell’s Scopus Asset Management, Kamyar Khajavi’s MIK Capital, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s also examine hedge fund activity in other stocks similar to United Rentals, Inc. (NYSE:URI). We will take a look at Dollar Tree, Inc. (NASDAQ:DLTR), NovoCure Limited (NASDAQ:NVCR), W.W. Grainger, Inc. (NYSE:GWW), CNH Industrial NV (NYSE:CNHI), Trip.com Group Limited (NASDAQ:TCOM), MongoDB, Inc. (NASDAQ:MDB), and CGI Inc. (NYSE:GIB). This group of stocks’ market caps are closest to URI’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.3 hedge funds with bullish positions and the average amount invested in these stocks was $961 million. That figure was $1173 million in URI’s case. MongoDB, Inc. (NASDAQ:MDB) is the most popular stock in this table. On the other hand CGI Inc. (NYSE:GIB) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks United Rentals, Inc. (NYSE:URI) is more popular among hedge funds. Our overall hedge fund sentiment score for URI is 83.9. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 29.6% in 2021 through November 5th but still managed to beat the market by 3.1 percentage points. Hedge funds were also right about betting on URI as the stock returned 22.9% since the end of June (through 11/5) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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Disclosure: None. This article was originally published at Insider Monkey.