Is Herc Holdings Inc. (HRI) the best stock to buy from Mario Gabelli’s portfolio?

We recently published a list Mario Gabelli Stock Portfolio: 10 Best Stocks to BuyIn this article, we’ll take a look at where Herc Holdings Inc. (NYSE:HRI) stacks up against other Mario Gabelli-approved stocks.

GAMCO Investors, Inc., formerly Gabelli Asset Management Company, is a well-known American company headquartered in Rye, New York. The company specializes in providing investment advisory and brokerage services to mutual funds, institutional clients, and select investors. The company was founded and is majority owned by Mario Gabelli, who has earned over $750 million in compensation over the past few years.

Experienced investor Mario Gabelli has made millions of dollars betting on the unloved. He likes to invest in companies that are NOT being watched or analyzed by Wall Street analysts. If a company is not part of an index, it becomes even more attractive.

The hedge fund manager remains committed to active value investing. His investment philosophy of focusing on value stocks over growth stocks prevailed even when passive index funds and the Nasdaq “FAANG” dominated the market during the Fed’s loose interest rate policy. His investment secret is simple – “Find a good business with good management, buy the stock at a reasonable price, and then hold it for the long term.”

According to Insider Monkey’s Q2 2024 database, industrial goods make up about 21.7% of the total investment portfolio.

What’s next for the US stock market, according to Gabelli Funds

Gabelli Funds believes the U.S. presidential election is likely to increase market volatility in the second half of 2024. At the same time, long-awaited rate cuts in September could increase rotation in areas of the market that lagged during the year. The investment management firm sees increased volatility in the election. That said, economic weakness and volatility are expected to be offset by fundamental rotation and lower rates.

Gabelli seems optimistic about the broader U.S. economy. He believes companies have healthy cash flows and gross margins are improving. The only thing that could affect U.S. stocks is geopolitical risk.

Gabelli recently appeared on the prestigious Barron’s Roundtable. He believes that global GDP, as measured by the International Monetary Fund, is expected to be ~$115 trillion in 2025. The US is 26% and China 17%. Consumer spending is ~70% of the US economy and industrial spending ~12%.

Mario Gabelli mentioned that the US Federal Reserve is focused on the four Rs. The first is to keep “interest rates high for longer.” The second R is the “continued outflow of the central bank’s balance sheet,” which is currently happening at a rate of $60 billion per month, up from ~$95 billion in early 2024. Next, the US Federal Reserve continues its efforts to “contain aggregate demand.” However, higher government spending continues to offset these efforts. Finally, the Chairman continues to “speech rhetoric about lower inflation.”

Mergers and acquisitions (M&A) and other financial engineering strategies are expected to increase significantly for a number of reasons. Gabelli believes that several private equity funds are approaching the end of their 10-year life cycles and limited partners (LPs) are in need of liquidity. Therefore, this situation will lead to higher sales. Mario Gabelli expects M&A to gain momentum globally in H2 2024.

While the S&P 500 is up more than 15% year-over-year, seasoned investors believe stocks could grow around 8% annually in the coming years, significantly higher than the returns from fixed-income securities.

Mario Gabelli is optimistic about these sectors

Mario Gabelli seems to be increasingly interested in sports franchises. This is because sports will remain the focal point of linear TV and streaming. Rumors have it that media companies are paying big bucks for broadcast and streaming rights.

Moving on, the seasoned hedge fund manager believes that AI is a great technology, just like other market experts.

Gabelli’s next choice is natural gas. He believes there is huge potential for price increases over the next few years, as some producers shut in wells or produce less, and demand continues to grow relative to power generators and liquefied natural gas exports.

At Insider Monkey, we’re fascinated by the stocks that hedge funds invest in. The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Herc Holdings Inc. (NYSE: HRI)

Value of GAMCO investor shares: USD 198.1 million

Percentage of GAMCO investors’ 13F portfolio: 2.15%

Number of hedge fund holders: 32

Herc Holdings Inc. (NYSE:HRI), through its subsidiaries, provides equipment rental services in key markets including construction, industrial and manufacturing, petrochemicals, refineries, land infrastructure and automotive.

In 2Q2024, the company reported record equipment rental revenue of $765 million, up 9% year-over-year, and record total revenue of $848 million, up 6% year-over-year. In 2Q2024, the company benefited from positive rental pricing, increased fleet efficiency and increased market share.

In 2H 2024, activity in megaprojects continues to grow during the peak season, in line with expectations. Notably, higher revenue growth in the rest of the year and additional adjustments made in 2Q 2024 to better align local cost structure should help achieve a more normal margin flow and REBITDA (Rental Adjusted EBITDA) in 2H 2024.

Despite slower growth in the current rate-sensitive local market, the outlook for rental demand remains strong, as the megaproject pipeline remains healthy, data center construction continues to accelerate, and federal infrastructure spending continues to ramp up. Herc Holdings Inc. (NYSE:HRI) should continue to grow, primarily due to fleet efficiency, pricing power, and growth opportunities in the entertainment and industrial sectors. It plans to capitalize on opportunities in construction activity over the next three years.

JPMorgan Chase & Co. has begun monitoring shares of Herc Holdings Inc. (NYSE:HRI) 7^t June. They gave a “Neutral” rating and a $155.00 price target. About 4 research analysts have given a “Hold” rating and 1 analyst has given a “Buy” rating to Herc Holdings Inc. (NYSE:HRI) shares.

According to Insider Monkey, 32 hedge funds held shares of Herc Holdings Inc. (NYSE:HRI) in the second quarter of 2024.

Total HRI Index takes 1st place on our list of the best stocks to buy according to Mario Gabelli. While we recognize the potential of HRI as an investment, our conviction is based on the belief that some deeply undervalued AI stocks have greater promise of delivering higher returns, and in a shorter time frame. If you are looking for deeply undervalued AI stocks that are more promising than HRI but are trading at less than 5 times earnings, check out our report on cheapest AI action.

READ MORE: $30 Trillion Opportunity: The 15 Best Humanoid Robot Stocks to Buy, According to Morgan Stanley AND Jim Cramer says NVIDIA has ‘become a wasteland’.

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