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Were Hedge Funds Right About Selling United Rentals (URI)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about United Rentals, Inc. (NYSE:URI).

United Rentals, Inc. (NYSE:URI) was in 44 hedge funds’ portfolios at the end of the second quarter of 2019. URI investors should be aware of a decrease in hedge fund interest of late. There were 45 hedge funds in our database with URI positions at the end of the previous quarter. Our calculations also showed that URI isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

MOORE GLOBAL INVESTMENTS

Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the latest hedge fund action encompassing United Rentals, Inc. (NYSE:URI).

How are hedge funds trading United Rentals, Inc. (NYSE:URI)?

At Q2’s end, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards URI over the last 16 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

URI_oct2019

Among these funds, Citadel Investment Group held the most valuable stake in United Rentals, Inc. (NYSE:URI), which was worth $150.9 million at the end of the second quarter. On the second spot was Theleme Partners which amassed $141.4 million worth of shares. Moreover, Millennium Management, Anchor Bolt Capital, and Adage Capital Management were also bullish on United Rentals, Inc. (NYSE:URI), allocating a large percentage of their portfolios to this stock.

Seeing as United Rentals, Inc. (NYSE:URI) has faced declining sentiment from the smart money, it’s safe to say that there is a sect of hedgies that slashed their positions entirely heading into Q3. At the top of the heap, Alex Snow’s Lansdowne Partners dropped the largest position of the “upper crust” of funds followed by Insider Monkey, comprising close to $20.9 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund said goodbye to about $20.8 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 1 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks similar to United Rentals, Inc. (NYSE:URI). These stocks are Allegion plc (NYSE:ALLE), Teva Pharmaceutical Industries Limited (NYSE:TEVA), Apache Corporation (NYSE:APA), and Camden Property Trust (NYSE:CPT). This group of stocks’ market valuations resemble URI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALLE 24 406142 3
TEVA 25 942298 -7
APA 22 614988 -6
CPT 19 316129 -5
Average 22.5 569889 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $570 million. That figure was $1044 million in URI’s case. Teva Pharmaceutical Industries Limited (NYSE:TEVA) is the most popular stock in this table. On the other hand Camden Property Trust (NYSE:CPT) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks United Rentals, Inc. (NYSE:URI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately URI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on URI were disappointed as the stock returned -6% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.

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

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