At Insider Monkey, we pore over the filings of nearly 750 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 March 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 interest recently. URI was in 45 hedge funds' portfolios at the end of March. There were 48 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.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman, GLG Partners[/caption]
We're going to take a look at the recent hedge fund action regarding United Rentals, Inc. (NYSE:URI).
What does the smart money think about United Rentals, Inc. (NYSE:URI)?
At the end of the first quarter, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. By comparison, 38 hedge funds held shares or bullish call options in URI a year ago. With hedgies' capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
The largest stake in United Rentals, Inc. (NYSE:URI) was held by Citadel Investment Group, which reported holding $183.4 million worth of stock at the end of March. It was followed by Citadel Investment Group with a $59.6 million position. Other investors bullish on the company included Point State Capital, GLG Partners, and Anchor Bolt Capital.
Since United Rentals, Inc. (NYSE:URI) has experienced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there was a specific group of fund managers that slashed their positions entirely by the end of the third quarter. At the top of the heap, Mike Masters's Masters Capital Management cut the largest investment of all the hedgies watched by Insider Monkey, totaling an estimated $51.3 million in stock. Ahmet Okumus's fund, Okumus Fund Management, also sold off its stock, about $39.6 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 3 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as United Rentals, Inc. (NYSE:URI) but similarly valued. These stocks are Dropbox, Inc. (NASDAQ:DBX), A. O. Smith Corporation (NYSE:AOS), National Retail Properties, Inc. (NYSE:NNN), and LKQ Corporation (NASDAQ:LKQ). This group of stocks' market caps are similar to URI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DBX,33,427201,-2 AOS,27,475457,-2 NNN,12,248443,-3 LKQ,43,1068048,3 Average,28.75,554787,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $555 million. That figure was $820 million in URI's case. LKQ Corporation (NASDAQ:LKQ) is the most popular stock in this table. On the other hand National Retail Properties, Inc. (NYSE:NNN) is the least popular one with only 12 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on URI, though not to the same extent, as the stock returned 0.8% during the same period and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.