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

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).

Decline In Crude Oil Prices Zach Schreiber

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.

South Ferry Capital was bullish on CST Brands Inc (NYSE:CST), in which it increased its stake by over 150% to 140,000 shares, with the value of the stake amounting to $6.14 million at the time of reporting. CST Brands Inc (NYSE:CST) is a $3.09-billion market cap retailer of motor fuels and convenience merchandise in North America, whose stock gained 21% during the past calendar year. A significant increase in motor fuel gross profit helped the company to boosts its first quarter 2015 net income to $14 million versus $11 million in the same period last year. Another investor in CST Brands is Iridian Asset Management, led by David Cohen and Harold Levy, which disclosed holding 3.98 million shares worth $174.5 million as of the end of the first quarter.

Over the quarter, South Ferry Capital’s stake remained unchanged in Winthrop Realty Trust (NYSE:FUR), with the investor maintaining ownership of 270,000 shares of the company, with a reported value of $4.41 million. Winthrop Realty Trust (NYSE:FUR) is a real estate investment trust, with a market cap of $597.7 million. Winthrop Realty Trust (NYSE:FUR)’s stock has risen by 12.75% since May 2014. Other investors with big positions in the company include Amy Minella’s Cardinal Capital and Derek C. Schrier’s Indaba Capital Management.

Halliburton Company (NYSE:HAL) is another new holding of South Ferry Capital, containing 25,000 shares valued at $1.09 million. Halliburton Company (NYSE:HAL) is a $40.3-billion market cap provider of oilfield services. Halliburton Company (NYSE:HAL) reported first quarter 2015 income from continuing operations of $418 million, which is significantly down from $623 million in the same period of 2014. Shares of Halliburton Company (NYSE:HAL) are down by 26% during the past calendar year, but have gained 21% thus far in 2015. Other large shareholders of the company among the funds we track are Jeffrey Ubben’s ValueAct Capital and Glenn Greenberg’s Brave Warrior Capital.

Disclosure: None

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