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Is United Rentals, Inc. (URI) Going to Burn These Hedge Funds?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded United Rentals, Inc. (NYSE:URI) and determine whether the smart money was really smart about this stock.

Is United Rentals, Inc. (NYSE:URI) a healthy stock for your portfolio? The best stock pickers were taking a pessimistic view. The number of long hedge fund bets went down by 3 recently. United Rentals, Inc. (NYSE:URI) was in 40 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 59. Our calculations also showed that URI 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.

Today there are many formulas market participants employ to appraise their holdings. Some of the most useful formulas are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the best picks of the top money managers can outclass their index-focused peers by a healthy amount (see the details here).

Chuck Royce

Chuck Royce of Royce & Associates

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 junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we’re going to take a look at the new hedge fund action surrounding United Rentals, Inc. (NYSE:URI).

Hedge fund activity in United Rentals, Inc. (NYSE:URI)

At second quarter’s end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the first quarter of 2020. On the other hand, there were a total of 44 hedge funds with a bullish position in URI a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is URI A Good Stock To Buy?

The largest stake in United Rentals, Inc. (NYSE:URI) was held by Lyrical Asset Management, which reported holding $276.6 million worth of stock at the end of September. It was followed by Theleme Partners with a $234.9 million position. Other investors bullish on the company included Arrowstreet Capital, Glenview Capital, and Holocene Advisors. In terms of the portfolio weights assigned to each position Theleme Partners allocated the biggest weight to United Rentals, Inc. (NYSE:URI), around 11.08% of its 13F portfolio. Elm Ridge Capital is also relatively very bullish on the stock, earmarking 8 percent of its 13F equity portfolio to URI.

Due to the fact that United Rentals, Inc. (NYSE:URI) has experienced a decline in interest from the smart money, logic holds that there was a specific group of money managers that slashed their entire stakes in the second quarter. Interestingly, Amit Nitin Doshi’s Harbor Spring Capital cut the largest stake of all the hedgies followed by Insider Monkey, comprising close to $33.2 million in stock, and Ryan Caldwell’s Chiron Investment Management was right behind this move, as the fund dumped about $11.9 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 3 funds in the second quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as United Rentals, Inc. (NYSE:URI) but similarly valued. We will take a look at Booz Allen Hamilton Holding Corporation (NYSE:BAH), Cable One Inc (NYSE:CABO), Regions Financial Corporation (NYSE:RF), Credicorp Ltd. (NYSE:BAP), C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), Monolithic Power Systems, Inc. (NASDAQ:MPWR), and argenx SE (NASDAQ:ARGX). This group of stocks’ market values are similar to URI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BAH 25 219237 -2
CABO 24 684886 1
RF 26 191710 -11
BAP 20 174521 -2
CHRW 28 441588 -4
MPWR 36 555595 13
ARGX 29 1157644 4
Average 26.9 489312 -0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $489 million. That figure was $890 million in URI’s case. Monolithic Power Systems, Inc. (NASDAQ:MPWR) is the most popular stock in this table. On the other hand Credicorp Ltd. (NYSE:BAP) is the least popular one with only 20 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 72.3. 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 33% in 2020 through the end of August but still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on URI as the stock returned 18.8% 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.

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