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THE SEARCH FOR SUPERSTARS – EPISODE ONE

March 2, 2023

United Rentals URI Buy @ $465

United Rentals is a fantastic business, really classy like Ashtead’s Sunbelt with which it shares leadership of the North American equipment rental market (17pc for URI v 13pc for Sunbelt). It is worth buying for this but that doesn’t make it a superstar. For that we need ‘something new’ and I think I may have found it.

United Rentals divides its business into what it calls Gen Rent and Speciality. I was a bit baffled at first but it turns out that Gen Rent refers to things like diggers and more construction related stuff and my guess is that it stands for general rental.

Speciality is the stuff featured below, it is higher margin and it is growing faster.

Over the last 11 years Specialty has been an amazing growth story.

At almost 30pc of turnover Specialty is starting to seriously move the needle for URI and when you think of North America the potential for this business looks enormous. I think it is a major reason for buying the shares in hope of a superstar performance in the years ahead.

I realise that I have been so blinded by my admiration for Ashtead that I did not realise what a class act United Rentals is becoming. The chart is amazing. You cannot ask better of a chart than a soaring share price and if that is happening as though the bear market was not there that is as strong as it gets. United Rentals ticks all the boxes for me and the sector is hot as we know from the way a sector ETF, PAVE, is performing (see last alert).

United Rentals has also starting paying dividends and has an aggressive share buyback programme to add to its attractions. We can see that Ashtead is also doing well so the two companies that between them have 30pc of the North American equipment rental market are in great shape.

Strategy

You might think it is a bit late to climb aboard this story but I don’t think it is. URI is emerging as one of the great North American growth stocks and could well see a rerating on top of the strong growth in earnings per share that is already happening. I see these shares as a strong buy.

I am growing ever more interested in the search for superstars. My thinking is that if a share in an individual company is not a potential superstar why bother with it. If we are just positioning ourselves to benefit from a new bull market we can use ETFs (built in diversification) and leveraged ETFs like QQQ3 (incredible excitement). So those individual company investments have to have red hot potential and that is what I am looking for.

This means for starters 3G (great growth, great story, great chart) but like Oliver Twist I want more. I want a classically strong chart, I want an important ‘something new’ and also just some indefinable magic that makes me fall in love with the stock as an investment and feel hungry to own the shares.

So that is what I am looking for. United Rentals is what I call episode one in this search. There will be more. My advice is try to buy them all.

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