According to a recent study by CIT, a reputable firm that is involved in financing and advisory services to the healthcare sector, healthcare executives seem rather optimistic about revenue growth and overall growth during 2015. Since healthcare costs are reaching insupportable levels, a notable opportunity in the healthcare sector at the moment is the switch from volume- to value-based care (VBC) in an effort to reduce costs and deliver more value to the consumer. Therefore, the healthcare sector outlook in 2015 is quite positive as the industry is dominated by speedy and constant change. The S&P 500 Health Care Index has increased by slightly more than 9% since the beginning of the current year, which is a clear sign that the industry is on the right path. It’s commonly known that healthcare investing involves a multidimensional approach to identify the underlying drivers of this industry, therefore, we will put forward a list of healthcare stocks that are the most popular among some of the top hedge funds in the world, some of which are entirely healthcare-focused. These funds know the ins-and-outs of the industry, as well as the challenges that it faces better than anyone. Here then is the list of the top five healthcare picks that might improve your portfolio’s prospects in the near future.
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But first, let’s take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis point per month during the same period. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 84 percentage points, returning over 144% (read the details here). Hence a retail investor needs to isolate himself from the herd and take advantage of the prevalent arbitrage opportunities in the market by concentrating on small-cap stocks.
The most popular healthcare stock among hedge funds is without a doubt Actavis PLC (NYSE:ACT). 157 hedge funds and investment firms from our database hold equity stakes in Actavis at the end of the first quarter, which marks an increase of almost 20% and makes it not only the most popular healthcare stock, but the most popular stock overall as well. Meanwhile, the value of the holdings in Actavis PLC (NYSE:ACT) increased to $21.97 billion from $13.99 billion during the first quarter. Despite the fact that a federal appeals court does not permit Actavis to sell the newer and more expensive version of the Namenda IR drug before competition emerges, the company’s growth revenue for the last quarter on a year-over-year basis reached 59.5%, which is well beyond the industry average of 8%. Actavis PLC (NYSE:ACT) generated revenues amounting to $4.23 billion, which likely played a role in the company’s shares gaining 17% year-to-date. One of the hedge funds that increased its equity holdings in Actavis PLC (NYSE:ACT) during the first quarter was Douglas Hirsch’s Seneca Capital, which holds the stock as its top pick.
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In the second spot on our list of the five most popular health care stocks is Valeant Pharmaceuticals International Inc. (NYSE:VRX). The number of hedge funds owning equity stakes in this company slightly increased to 104 from 102 during the last reporting period. Meanwhile, the value of the total holdings spiked by over 42% over the course of the first quarter, increasing to $20.11 billion from just $14.08 billion. Valeant Pharmaceuticals International Inc. (NYSE:VRX)’s stock has achieved an exorbitant increase of nearly 66% since the beginning of the current year, however the uptrend might keep going as the company plans to expand its operations in the fast-growing Asian market. According to Valeant’s CEO, the company will keep making acquisitions so as to feed the unmet need in Asia and other regions. Bill Ackman’s Pershing Square and Jeffrey Ubben’s ValueAct Capital are among the largest equity holders of the Montreal-based Valeant Pharmaceuticals International Inc. (NYSE:VRX).
Gilead Sciences Inc. (NASDAQ:GILD) is the third-most popular healthcare stock when measured by the number of hedge funds we track that own equity stakes in the company. The hedge fund positions in this stock decreased to 90 from 97, while the value of the aggregate investments of those funds shrunk by 15%, decreasing to $4.24 billion. Gilead’s shares have risen by more than 16% since the beginning of the year, hence, it seems that a few hedge funds decided to cash out some of their holdings. However, Gilead Sciences Inc. (NASDAQ:GILD)’s shares might continue their strong uptrend as the company remains the market leader in the production of HIV and hepatitis C treatments. The significant amount of operating cash the company has been able to generate further allows it to maintain its leading market share position by investing heavily in R&D. There are numerous hedge funds that remain bullish on Gilead Sciences Inc. (NASDAQ:GILD), including Bernard Selz’s Selz Capital and Matthew Iorio’s White Elm Capital.
Another attractive healthcare pick included in our list is Pfizer Inc. (NYSE:PFE). The number of funds that hold equity stakes in this company dropping to 81 from 86. Despite the fact the number of hedge funds holding stakes in Pfizer Inc. (NYSE:PFE) decreased, the overall value of their investments in the company rose by nearly 17% to $5.47 billion. The stock has soared by 10% during the current year as the company’s financial performance has been quite strong lately. Moreover, Pfizer’s current debt-to-equity ratio equals 0.53 and remains below the industry average, suggesting that the company has been effective in managing its debt levels. A few funds, including Anders Hallberg and Carl Bennet’s Healthinvest Partners AB and Stuart Weisbrod’s Iguana Healthcare Management increased their equity holdings in Pfizer Inc. (NYSE:PFE) during the latest quarter.
Our list of top healthcare stocks is completed by Teva Pharmaceutical Industries Limited (NYSE:TEVA). During the last quarter, the total number of funds holding stakes in Teva increased to 77 from 67. At the same time, the value of the positions in the company increased to $4.01 billion from $3.8 billion. Just recently, Teva Pharmaceutical Industries Limited (NYSE:TEVA) published some promising results from a phase IIB study on TEV-48125, which is developed for patients with chronic migraines. The company intends to push TEV-48125 into phase III, therefore, it is expected that the company will boost its revenues should the candidate be successful and brought to the market. Zach Schreiber’s Point State Capital increased its already sizable equity stake in Teva Pharmaceutical Industries Limited (NYSE:TEVA), its top pick, by a further 27% in the first quarter.
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