We recently published a list of Mario Gabelli Stock Portfolio: 10 Best Stocks to Buy. In this article, we are going to take a look at where Herc Holdings Inc. (NYSE:HRI) stands against the other Mario Gabelli-approved stocks.

GAMCO Investors, Inc., formerly Gabelli Asset Management Company, is a prominent American firm, which has its headquarters in Rye, New York. The company specializes in offering investment advice and brokerage services to mutual funds, institutional clients, and select investors. The company was founded and is majority-owned by Mario Gabelli, who earned over $750 million in compensation over the past several years.

Veteran investor Mario Gabelli has earned millions of dollars by betting on the unloved. He likes to invest in companies that are NOT being followed or that are NOT being covered by Wall Street analysts. If the companies are not forming part of an index, it makes them even more appealing.

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 Nasdaq “FAANG” dominated the market during the US Fed’s loose interest-rate policies. His investing secret is simple– “Find a good business having good management, buy the stock at a reasonable price, and then hold that stock for the long term.”

As per Insider Monkey’s 2Q 2024 database, out of the total investment portfolio, ~21.7% accounts for Industrial goods.

What Lies Ahead for the US Stock Market as Per Gabelli Funds

Gabelli Funds believes that the US Presidential election is expected to add to market volatility in 2H 2024. At the same time, the much-anticipated rate cuts in September might give a boost to rotation into areas of the market that have lagged during the year. The investment management firm sees increased volatility in the election. That being said, the economic weakness and volatility are expected to be offset by the underlying rotation and lower rates.

Gabelli seems to be optimistic about the broader US economy. He believes that companies have healthy cash flows and that gross margins are better. The only thing that might weigh over the US equities is the geopolitical risk.

Gabelli recently appeared in the prestigious Barron’s Roundtable discussion. He believes that World GDP, which is measured by the International Monetary Fund, is expected to be ~$115 trillion in 2025. The U.S. is 26%, and China is 17%. The consumer makes up for ~70% of the U.S. economy, and industrial spending accounts for ~12%.

Mario Gabelli mentioned that the US Fed is focused on the four R’s. The first is keeping “rates high for longer.” The second R is “continued runoff of the central bank’s balance sheet,” now occurring at a $60 billion pace monthly, down from ~$95 billion in early 2024. Next, the US Fed continues to make efforts to “reduce aggregate demand.” However, the higher government spending continues to offset these efforts. Finally, the Chairman continues to be “rhetoric about bringing the inflation down.”

Mergers and acquisitions (M&As) and other financial engineering strategies are expected to ramp up substantially, for numerous reasons. Gabelli believes that several private equity funds are about to see the end of their 10-year life cycles, and limited partners (LPs) need liquidity. Therefore, this situation will lead to higher sales. Mario Gabelli expects M&A to pick up globally in 2H 2024.

While the S&P 500 is up over ~15% on a YTD basis, the veteran investor believes that stocks can compound at ~8% annual growth rate in the upcoming years, significantly higher than the earnings from fixed-income securities.

Mario Gabelli is Optimistic About These Sectors

Mario Gabelli seems to gain interest in the sports franchises. This is because sports will remain central to linear television and streaming. The buzz is that media companies are shelling out hefty sums for broadcasting and streaming rights.

Moving on, the veteran hedge fund manager believes that artificial intelligence is a great technology, just like other market experts.

Gabelli’s next pick is natural gas. He believes that, over the next few years, there is a huge potential for prices to increase. This is because some producers are capping wells or producing less and demand continues to pick up as compared to power generators and liquefied natural gas exports.

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

An overhead shot of a ProSolutions employee in the process of delivering equipment to a construction site.

Herc Holdings Inc. (NYSE:HRI)

GAMCO Investors’ Stake Value: $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 critical markets, such as construction, industrial and manufacturing, petrochemicals, refineries, civil infrastructure, and automotive, among others.

In 2Q 2024, the company saw record equipment rental revenue of $765 million, exhibiting an increase of 9% YoY and record total revenues of $848 million, an increase of 6% YoY. During 2Q 2024, the company benefited from positive rental pricing, improved fleet efficiency, and enhanced market share.

For 2H 2024, mega project activity continues to ramp up into peak season as expected. Notably, higher revenue growth for the remainder of the year and incremental adjustments made in 2Q 2024 to better align the local cost structure should help drive more normal margin and REBITDA (Rental Adjusted EBITDA) flow through for 2H 2024.

Despite slower growth in the current rate-sensitive local market, the outlook for rental demand remains strong. This is because the pipeline for mega projects is healthy, data center construction continues to accelerate, and federal infrastructure spending continues to roll out. Herc Holdings Inc. (NYSE:HRI) should continue to ride high, mainly due to fleet efficiency, pricing power, and growth opportunities available in the entertainment and industrial sectors. It plans to capitalize on the opportunities available in construction activity over the upcoming 3 years.

JPMorgan Chase & Co. initiated the coverage on the shares of Herc Holdings Inc. (NYSE:HRI) on 7^th June. They gave a “neutral” rating and a price target of $155.00. Around 4 research analysts gave a “Hold” rating and 1 analyst gave a “Buy” rating on Herc Holdings Inc. (NYSE:HRI)’s stock.

As per Insider Monkey, 32 hedge funds hold Herc Holdings Inc. (NYSE:HRI) as of Q2 2024.

Overall HRI ranks 1st on our list of best stocks to buy according to Mario Gabelli. While we acknowledge the potential of HRI as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than HRI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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