Herc Holdings Inc. (HRI): Hedge Funds Are Nibbling

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Herc Holdings Inc. (NYSE:HRI) based on that data and determine whether they were really smart about the stock.

Is Herc Holdings Inc. (NYSE:HRI) a good investment now? Investors who are in the know were taking an optimistic view. The number of bullish hedge fund bets moved up by 4 lately. Herc Holdings Inc. (NYSE:HRI) was in 21 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 29. Our calculations also showed that HRI isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. With all of this in mind let’s go over the key hedge fund action encompassing Herc Holdings Inc. (NYSE:HRI).

How are hedge funds trading Herc Holdings Inc. (NYSE:HRI)?

Heading into the third quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HRI over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Icahn Capital LP held the most valuable stake in Herc Holdings Inc. (NYSE:HRI), which was worth $138.1 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $108.3 million worth of shares. Nut Tree Capital, Electron Capital Partners, and Redwood Capital Management 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 7.27% of its 13F portfolio. Electron Capital Partners is also relatively very bullish on the stock, dishing out 1.73 percent of its 13F equity portfolio to HRI.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Electron Capital Partners, managed by Jos Shaver, assembled the biggest position in Herc Holdings Inc. (NYSE:HRI). Electron Capital Partners had $15.7 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated a $6.7 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, Ali Motamed’s Invenomic Capital Management, and John Orrico’s Water Island Capital.

Let’s now review hedge fund activity in other stocks similar to Herc Holdings Inc. (NYSE:HRI). We will take a look at Veritex Holdings Inc (NASDAQ:VBTX), Suburban Propane Partners LP (NYSE:SPH), Tilray, Inc. (NASDAQ:TLRY), Genesis Energy, L.P. (NYSE:GEL), FBL Financial Group (NYSE:FFG), Celestica Inc. (NYSE:CLS), and Alexander & Baldwin Inc (NYSE:ALEX). This group of stocks’ market caps resemble HRI’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.4 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $352 million in HRI’s case. Alexander & Baldwin Inc (NYSE:ALEX) is the most popular stock in this table. On the other hand Suburban Propane Partners LP (NYSE:SPH) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Herc Holdings Inc. (NYSE:HRI) is more popular among hedge funds. Our overall hedge fund sentiment score for HRI is 80.7. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 24.8% in 2020 through the end of September but still managed to beat the market by 19.3 percentage points. Hedge funds were also right about betting on HRI as the stock returned 28.9% since the end of June 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.

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