In the last month the industrial sector has been essentially flat and over the last three months the industrial sector is down 5.4% Lately, my focus when considering investing in the industrial sector are companies who have no European/China exposure or companies that can remain unaffected by economic changes that happen globally. My short term focus is on U.S. based companies and I believe U.S. companies are still the best place to invest right now since U.S. companies are performing better than their peers with global operations.
In my last industrial article I wrote about the World's Largest Industrial Auctioneer Ritchie Bros. (NYSE:RBA) and in my opinion is an industrial niche play that benefits in up or down economic conditions. For investors that enjoy specialized companies, another industrial niche company to consider is United Rentals (NYSE:URI). United Rentals was founded in 1997 through a series of acquisitions and is currently the largest equipment rental company in the world. United Rentals operates in the United States and Canada and has no overseas exposure. United Rentals caters to construction companies, homeowners, municipalities and utility companies as an alternative way to provide industrial equipment through rental and leasing rather than outright ownership.
For investors considering putting money to work in United Rentals this company is a pure play on the United States as United Rentals has over 500 rental locations in 48 states and 10 Canadian provinces. Currently, the rental industry is a 45 billion in annual revenue industry and the industry can be seen as resistant to an array of economic conditions since renting can be an attractive alternative to purchasing equipment. For investors who are considering investing in United Rentals here are some key reasons to consider investing in this company:
1) Competition is a dynamic to consider in any industry and United Rentals competitors are mainly small businesses that are not as diversified in locations as United Rentals. United Rentals has unique competitive advantages in the industrial rental equipment space that include; providing a diverse range of industrial equipment, ability to move in demand equipment to higher demand areas, large purchasing power and the abilities to sell equipment to make room for newer equipment.
2) United Rentals acquired one of their biggest competitors RSC Holdings for 4.3 billion in cash and stock. RSC Holdings is an equipment rental company that has a similar business model to United Rentals and this acquisition will allow for horizontal integration and contribute to further growth.
3) Continued improving industrial production will benefit United Rentals primarily in construction spending, utility use and improving credit conditions.
4) As competition for construction projects increases the right tools for the job is essential and United Rentals employees specialize in finding prospective customers the best equipment. Customer service is a big component in the rental industry and United Rentals has a well maintained fleet of equipment that provides significant advantages to outright ownership.
5) Over the last seven days shares of United Rentals have increased by four dollars per share or slightly over 14% on no significant news. The $32 price level appears to be a solid bottom and if United Rentals can maintain the $36 price level I would expect United Rentals to see $40 in the short term.
Currently, United Rentals has no analyst sell ratings and most of the analyst price targets are for over $40 per share. When taking a look at the above chart, investors will notice that the $30 level appears to be a bottom in United Rentals with significant bounces upward in January 2012 and the beginning of June. With the bigger than expected stock increase over the last couple of days, I would want to be a buyer of United Rentals on a pullback as the stock is up over 5% at the time I am writing this article. With the fragmented competition United Rentals has and being the leader in industrial equipment rentals; the main concern to consider when investing in United Rentals is a weaker than expected industrial outlook. I am confident that United Rentals position in the equipment rental business is an industrial niche play that will continue to make gains as the economy improves.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in URI over the next 72 hours. I will be considering OTM calls on a pullback in URI.