In this article we will take a look at whether hedge funds think Herc Holdings Inc. (NYSE:HRI) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is HRI a good stock to buy now? Herc Holdings Inc. (NYSE:HRI) was in 19 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 29. HRI investors should be aware of a decrease in activity from the world's largest hedge funds of late. There were 21 hedge funds in our database with HRI positions at the end of the second quarter. Our calculations also showed that HRI isn't among the 30 most popular stocks among hedge funds (click for Q3 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 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Donald Sussman Paloma Partners
Donald Sussman of Paloma Partners
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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now let's take a peek at the key hedge fund action encompassing Herc Holdings Inc. (NYSE:HRI).
Do Hedge Funds Think HRI Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the second quarter of 2020. By comparison, 28 hedge funds held shares or bullish call options in HRI a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Icahn Capital LP, managed by Carl Icahn, holds the number one position in Herc Holdings Inc. (NYSE:HRI). Icahn Capital LP has a $178 million position in the stock, comprising 1% of its 13F portfolio. The second most bullish fund manager is GAMCO Investors, led by Mario Gabelli, holding a $134.7 million position; 1.5% of its 13F portfolio is allocated to the company. Some other peers that hold long positions contain Jared Nussbaum's Nut Tree Capital, Jos Shaver's Electron Capital Partners and Jonathan Kolatch's Redwood Capital Management. In terms of the portfolio weights assigned to each position Nut Tree Capital allocated the biggest weight to Herc Holdings Inc. (NYSE:HRI), around 9.01% of its 13F portfolio. Electron Capital Partners is also relatively very bullish on the stock, earmarking 1.78 percent of its 13F equity portfolio to HRI.
Because Herc Holdings Inc. (NYSE:HRI) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there were a few money managers that slashed their full holdings in the third quarter. Intriguingly, Richard Driehaus's Driehaus Capital sold off the biggest position of the 750 funds followed by Insider Monkey, valued at about $6.7 million in stock. Ali Motamed's fund, Invenomic Capital Management, also dropped its stock, about $0.3 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds in the third quarter.
Let's go over hedge fund activity in other stocks similar to Herc Holdings Inc. (NYSE:HRI). We will take a look at Infinera Corp. (NASDAQ:INFN), Annexon, Inc. (NASDAQ:ANNX), EnLink Midstream LLC (NYSE:ENLC), Opera Limited (NASDAQ:OPRA), New Gold Inc. (NYSE:NGD), SilverCrest Metals Inc. (NYSE:SILV), and Atrion Corporation (NASDAQ:ATRI). All of these stocks' market caps resemble HRI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INFN,20,261249,-1 ANNX,11,323562,11 ENLC,9,12533,2 OPRA,4,1682,-1 NGD,12,99810,1 SILV,12,189586,3 ATRI,10,57819,-2 Average,11.1,135177,1.9 [/table]
As you can see these stocks had an average of 11.1 hedge funds with bullish positions and the average amount invested in these stocks was $135 million. That figure was $440 million in HRI's case. Infinera Corp. (NASDAQ:INFN) is the most popular stock in this table. On the other hand Opera Limited (NASDAQ:OPRA) is the least popular one with only 4 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. Our overall hedge fund sentiment score for HRI is 69.5. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on HRI as the stock returned 56.9% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
