Investing in hedge funds can bring large profits, but this practice is not for everybody given that hedge funds are only available for high-net-worth individuals. They generate significant returns for their investors to justify their large fees, which they accomplish by allocating a lot of time and employing complex strategies to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the basket of small-caps. The huge amount of capital does not allow hedge funds to focus solely on small-caps, but our research shows that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is the primary reason why the Insider Monkey team follows the hedge fund activity in the small-cap space (see more details here). For that reason, the following article will discuss the hedge fund sentiment towards one of those small-cap stocks, Brookdale Senior Living Inc. (NYSE:BKD).
Brookdale Senior Living Inc. (NYSE:BKD) was in 57 hedge funds’ portfolios at the end of December. BKD investors should be aware of a decrease in enthusiasm from smart money in recent months. There were 66 hedge funds in our database with BKD holdings at the end of the previous quarter. However, hedge funds in our system own 44.30% of the company’s shares, so overall sentiment is still very high. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Rackspace Hosting, Inc. (NYSE:RAX), Webster Financial Corporation (NYSE:WBS), and Starz (NASDAQ:STRZA) to gather more data points.
Follow Brookdale Senior Living Inc. (NYSE:BKD)
Follow Brookdale Senior Living Inc. (NYSE:BKD)
Brookdale Senior Living Inc. (NYSE:BKD) functions as one of the largest operators of senior living communities in the United States based on capacity, serving roughly 108,000 residents in 1,123 communities. The elder care company intends to grow its business operations through a mix of occupancy growth and increases in monthly service fees, as well as by engaging in acquisitions. The senior living industry has experienced exceptional growth over the past 20 years or so, thanks to the emergence of assisted living in the 1990’s. Moreover, the senior living industry is anticipated to experience sustained growth in the upcoming years as well, considering that the group of individuals aged 75 and above is anticipated to be the fastest growing age group over the next two decades. Seniors are living longer, so this demographic trend will most likely lead to increased demand for senior living services.
Billionaire Larry Robbins of Glenview Capital said at the Sohn Investment Conference back in 2015 that an investment in Brookdale Senior Living Inc. (NYSE:BKD) represents a bet on the aging population. “By far the easiest thing to bet on is the aging populations”, said Mr. Robbins at the time. Meanwhile, Brookdale Senior Living has been very successful in monetizing on the aforementioned demographic trend during the past several years. The company’s 2015 total revenue was $4.96 billion, up from $3.83 billion in 2014, $2.89 billion in 2013 and $2.77 billion in 2012.
With all of this in mind, let’s check out the latest trading action encompassing Brookdale Senior Living Inc. (NYSE:BKD), as well as discuss an activist’s thoughts on the company and its potential.
In the meantime, activist Tom Sandell of Sandell Asset Management was pushing Brookdale Senior Living Inc. (NYSE:BKD) to spin-off its owned properties into a real estate investment trust throughout 2015. The widely-known activist said in 2015 that:
We are disappointed that the board has not committed to unlocking the significant value we believe is embedded in the company’s owned real estate portfolio, especially with senior living real-estate valuations at all-time highs.
Sandell Asset Management and Brookdale Senior Living Inc. (NYSE:BKD) reached an agreement in April 2015, under which the company appointed two new directors to its Board of Directors. This followed Sandell’s notice of its intention to nominate persons for election as directors at the company’s annual meeting of stockholders. Larry Robbins also seemed to agree that Mr. Sandell’s efforts in pushing for monetization of Brookdale’s real estate would create shareholder value. But does Brookdale Senior Living represent a good buying opportunity at the moment? The shares of the company are down by 60% over the past 12 months, which might have created attractive entry points for investors. Although the company’s bottom-line figures might have disappointed investors over the past several quarters, its strong revenue growth is definitely worth investors’ attention.
How are hedge funds trading Brookdale Senior Living Inc. (NYSE:BKD)?
At Q4’s end, a total of 57 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decline of 14% from the third quarter. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully (or had already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Glenview Capital holds the most valuable position in Brookdale Senior Living Inc. (NYSE:BKD). Glenview Capital has a $334.9 million position in the stock, comprising 1.9% of its 13F portfolio. Coming in second is Visium Asset Management, led by Jacob Gottlieb, holding a $110.7 million position; 1.7% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions contain Thomas Ellis and Todd Hammer’s North Run Capital, Joshua Friedman and Mitchell Julis’ Canyon Capital Advisors, and Rob Citrone’s Discovery Capital Management.
Since Brookdale Senior Living Inc. (NYSE:BKD) has witnessed declining sentiment from the smart money, it’s safe to say that there is a sect of money managers that decided to sell off their positions entirely in the fourth quarter. At the top of the heap, Barry Rosenstein’s JANA Partners cut the largest position of the 700 funds tracked by Insider Monkey, worth close to $235.6 million in stock, while Robert Pitts’ Steadfast Capital Management was right behind this move, as the fund dropped about $82.3 million worth of shares. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 9 funds in the fourth quarter.
The concluding page of this article discusses the hedge fund activity in several other companies with a market capitalization similar to BKD’s market value.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Brookdale Senior Living Inc. (NYSE:BKD) but similarly valued. These stocks are Rackspace Hosting, Inc. (NYSE:RAX), Webster Financial Corporation (NYSE:WBS), Starz (NASDAQ:STRZA), and Questar Corporation (NYSE:STR). This group of stocks’ market valuations are closest to BKD’s market valuation.
Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
---|---|---|---|
RAX | 30 | 685045 | 0 |
WBS | 19 | 399586 | -6 |
STRZA | 32 | 714895 | 3 |
STR | 13 | 44612 | -2 |
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $461 million. That figure was $1.51 billion in BKD’s case. Starz (NASDAQ:STRZA) is the most popular stock in this table. On the other hand Questar Corporation (NYSE:STR) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Brookdale Senior Living Inc. (NYSE:BKD) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio, bearing in mind the noteworthy dip in sentiment during the fourth quarter.
Disclosure: None