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Do Hedge Funds Love Herc Holdings Inc. (HRI)?

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·6 min read
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As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Herc Holdings Inc. (NYSE:HRI).

Is Herc Holdings Inc. (NYSE:HRI) a great investment right now? Investors who are in the know were turning bullish. The number of bullish hedge fund bets inched up by 2 recently. Herc Holdings Inc. (NYSE:HRI) was in 17 hedge funds' portfolios at the end of March. The all time high for this statistic is 29. Our calculations also showed that HRI isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Carl Icahn - Icahn Capital Lp
Carl Icahn - Icahn Capital Lp

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Now let's review the recent hedge fund action surrounding Herc Holdings Inc. (NYSE:HRI).

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

At Q1's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards HRI over the last 23 quarters. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Is HRI A Good Stock To Buy?
Is HRI A Good Stock To Buy?

Among these funds, Icahn Capital LP held the most valuable stake in Herc Holdings Inc. (NYSE:HRI), which was worth $455.5 million at the end of the fourth quarter. On the second spot was GAMCO Investors which amassed $284.8 million worth of shares. Electron Capital Partners, Royce & Associates, and Nut Tree 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 Nut Tree Capital allocated the biggest weight to Herc Holdings Inc. (NYSE:HRI), around 7.39% of its 13F portfolio. Electron Capital Partners is also relatively very bullish on the stock, dishing out 4.19 percent of its 13F equity portfolio to HRI.

Consequently, some big names have jumped into Herc Holdings Inc. (NYSE:HRI) headfirst. AQR Capital Management, managed by Cliff Asness, created the largest position in Herc Holdings Inc. (NYSE:HRI). AQR Capital Management had $0.5 million invested in the company at the end of the quarter. Karim Abbadi and Edward McBride's Centiva Capital also made a $0.5 million investment in the stock during the quarter. The other funds with brand new HRI positions are Donald Sussman's Paloma Partners and Thomas Bailard's Bailard Inc.

Let's go over hedge fund activity in other stocks similar to Herc Holdings Inc. (NYSE:HRI). These stocks are Alkermes Plc (NASDAQ:ALKS), PriceSmart, Inc. (NASDAQ:PSMT), Baozun Inc (NASDAQ:BZUN), Central Garden & Pet Co (NASDAQ:CENT), Cabot Corporation (NYSE:CBT), Prospect Capital Corporation (NASDAQ:PSEC), and United Community Banks Inc (NASDAQ:UCBI). This group of stocks' market values resemble HRI's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALKS,31,595809,1 PSMT,10,32204,-2 BZUN,11,41016,-3 CENT,12,178979,-8 CBT,23,111847,3 PSEC,7,11641,-1 UCBI,11,33369,0 Average,15,143552,-1.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $144 million. That figure was $955 million in HRI's case. Alkermes Plc (NASDAQ:ALKS) is the most popular stock in this table. On the other hand Prospect Capital Corporation (NASDAQ:PSEC) is the least popular one with only 7 bullish hedge fund positions. Herc Holdings Inc. (NYSE:HRI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HRI is 45.4. 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 gained 28.5% in 2021 through July 23rd and still beat the market by 10.1 percentage points. Hedge funds were also right about betting on HRI, though not to the same extent, as the stock returned 15.9% since Q1 (through July 23rd) and outperformed the market as well.

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