Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Herc Holdings Inc. (NYSE:HRI) is a good investment right now.
Herc Holdings Inc. (NYSE:HRI) was in 21 hedge funds’ portfolios at the end of the fourth quarter of 2019. HRI has seen a decrease in hedge fund sentiment recently. There were 28 hedge funds in our database with HRI holdings at the end of the previous quarter. Our calculations also showed that HRI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Carl Icahn of Icahn Capital
We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the “next Amazon” in this video; again we are listening. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the latest hedge fund action surrounding Herc Holdings Inc. (NYSE:HRI).
What have hedge funds been doing with Herc Holdings Inc. (NYSE:HRI)?
At Q4’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from one quarter earlier. By comparison, 27 hedge funds held shares or bullish call options in HRI a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Carl Icahn’s Icahn Capital LP has the biggest position in Herc Holdings Inc. (NYSE:HRI), worth close to $220 million, comprising 0.8% of its total 13F portfolio. Sitting at the No. 2 spot is Mario Gabelli of GAMCO Investors, with a $173.3 million position; the fund has 1.4% of its 13F portfolio invested in the stock. Other peers that are bullish comprise Renaissance Technologies, Jared Nussbaum’s Nut Tree Capital and Chuck Royce’s Royce & Associates. In terms of the portfolio weights assigned to each position Nut Tree Capital allocated the biggest weight to Herc Holdings Inc. (NYSE:HRI), around 16.72% of its 13F portfolio. Redwood Capital Management is also relatively very bullish on the stock, setting aside 2.42 percent of its 13F equity portfolio to HRI.
Since Herc Holdings Inc. (NYSE:HRI) has faced declining sentiment from the smart money, logic holds that there were a few hedge funds who sold off their positions entirely last quarter. It’s worth mentioning that Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors sold off the biggest position of the “upper crust” of funds followed by Insider Monkey, worth close to $8.8 million in stock. Mark Coe’s fund, Intrinsic Edge Capital, also said goodbye to its stock, about $8.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 7 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Herc Holdings Inc. (NYSE:HRI). These stocks are Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL), NexTier Oilfield Solutions Inc. (NYSE:NEX), Armada Hoffler Properties Inc (NYSE:AHH), and Monmouth R.E. Inv. Corp. (NYSE:MNR). This group of stocks’ market valuations are similar to HRI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MDGL | 19 | 328636 | 6 |
| NEX | 29 | 563682 | 6 |
| AHH | 6 | 81469 | -9 |
| MNR | 14 | 77143 | 3 |
| Average | 17 | 262733 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $263 million. That figure was $572 million in HRI’s case. NexTier Oilfield Solutions Inc. (NYSE:NEX) is the most popular stock in this table. On the other hand Armada Hoffler Properties Inc (NYSE:AHH) is the least popular one with only 6 bullish hedge fund positions. Herc Holdings Inc. (NYSE:HRI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately HRI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HRI were disappointed as the stock returned -46.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
