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United Rentals Inc. (URI), CST Brands Inc (CST), Halliburton Company (HAL): South Ferry Capital’s Top Picks

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South Ferry Capital Management, managed by John Reilly, has filed its Form 13F with the U.S. Securities and Exchange Commission for the reporting period as of the end of the first quarter of 2015. New York-based South Ferry Capital is a long/short credit hedge fund founded by Reilly in 2010. The fund has $235 million in assets under management. In the filing, South Ferry Capital revealed positions in 10 stocks, with its equity portfolio value amounting to $46.78 million, down from about $122 million in the previous quarter. The investor sold out of holdings of 16 stocks, while it acquired six new stocks during the quarter. We will discuss the fund’s position in four of its top stock picks, which are United Rentals Inc. (NYSE:URI), CST Brands Inc (NYSE:CST), Winthrop Realty Trust (NYSE:FUR) and Halliburton Company (NYSE:HAL).

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Insider Monkey tracks more than 700 hedge funds as part of its small-cap strategy. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of 6 basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of 7 basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month. We have been sharing the stock picks of our small-cap hedge fund strategy since the end of August 2012. Through March 11th, 2015 our small-cap strategy returned 132.0%, with the S&P 500 ETF (SPY) returning only 52.6% during the same period. Our small-cap hedge fund strategy outperformed the market by 79.4 percentage points over this 2.5 year period (see more details).

Let’s begin with the top holding of South Ferry Capital, which is a position of call options underlying 217,900 shares of United Rentals Inc. (NYSE:URI). The holding is valued at $19.86 million and represents a new position for the fund. United Rentals Inc. (NYSE:URI) is engaged is the equipment rental business and has a market cap of $9.94 billion. The company posted strong financial results for the first quarter of 2015, with revenue of $1.32 billion versus $1.18 billion a year ago. The company posted net income of $115 million, or $1.16 per diluted share, significantly up from $60 million, or $0.56 per diluted share in the same period last year. Despite that, United Rentals Inc. (NYSE:URI)’s stock currently trades at $102.16, having lost 1.55% year-to-date. Analysts have a consensus target price of $117.09 for the company’s stock, which some of United Rentals’ largest shareholders: Par Capital Management, led by Paul Reeder and Edward Shapiro, and Ross Margolies’ Stelliam Investment Management, would love to see it achieve.

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