Mario Gabelli (Trades, Portfolio) of GAMCO Investors discussed a current stock pick at the Great Investors’ Best Ideas Symposium in Dallas on Oct. 18. He has presented multiple times over the event’s 10-year history and revealed his stock pick for this year is in equipment rentals. The stock is Herc Holdings (HRI, Financial), a spinoff from Hertz Global Holdings (HTZ, Financial).
Gabelli touched on our country and our world’s current economical, political and societal conditions, highlighting areas where money is spent, such as the military, housing, infrastructure, health, etc. He emphasized the state of our country’s infrastructure, citing that 40% of bridges are rated D minus.
Gabelli said equipment rentals is a $45 billion business that is growing 4% to 5%. It is a highly fragmented business with three major players that would benefit from infrastructure spending. He tied this to the upcoming presidential election and predicted that either candidate would devote resources to improving the country’s infrastructure.
The investor also said he believes that by investing in Herc you could triple your money over the next five years.
The guru discussed how the U.S. is adaptable to change and is extremely productive because of it. The equipment rentals sector is becoming more accepted due to changes in policy and spending over the last few years. He outlined the benefits contractors have in renting versus owning equipment.
When renting, you can more easily manage fleet risk, you have capital flexibility, and you can outsource repair and fleet maintenance. If you own, it reduces downtime, there is no licensing required, you save on storage, and you ensure you have the right equipment.
Gabelli presenting at the conference in Dallas.
Herc was not a public company until July, as it had just spun off from Hertz. There are 28.3 million shares for $30 per share, which comes out to around $900 million. The debt is $2.1 million from the spinoff with Hertz, as the car rental company needed the cash, thereby putting the debt on the books.
Gabelli said the opportunity in Herc lies in the company’s growth. Down the road as it improves its margins, which currently stand at 34%, he said he believes the stock will rise to $78 per share in the next three years.
He also briefly discussed several other equipment rental companies such as United Rentals (URI, Financial) and Ashtead (LSE:AHT, Financial).
Gabelli currently holds 4.9% of Herc’s outstanding shares, which is 0.3% of his total assets managed. Other gurus involved in Herc are Larry Robbins (Trades, Portfolio), Carl Icahn (Trades, Portfolio), Jim Simons (Trades, Portfolio), David Einhorn (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Murray Stahl (Trades, Portfolio), John Burbank (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio) and First Eagle Investment (Trades, Portfolio).
In Herc’s parent company, Hertz, Gabelli holds 1.6% of outstanding shares, which is 0.21% of his total assets managed. Other gurus involved in Hertz are Icahn, Robbins, Simons, Einhorn, Royce, Stahl, Burbank, Steven Cohen (Trades, Portfolio) and PRIMECAP Management (Trades, Portfolio).
Herc was trading at $29.57 per share on Thursday.
Disclosure: I do not own stock in any companies mentioned in the article.
Start a free 7-day trial of Premium Membership to GuruFocus.
Mario Gabelli speaks at GIBI in Dallas.
David Einhorn has a discussion at GIBI in Dallas on Oct. 18.
Ray Nixon Jr. of Barrow, Hanley, Mewhinney & Strauss presents at GIBI.
