The second half of 2015 has been tragic for hospital stocks. With concerns of a growing number of uninsured patients who can’t pay their medical bills on the rise, most hospital stocks have been punished heavily in the last few months. The erosion in market capitalization of some of these companies has been so significant that now they are trading at levels last seen in 2012. With this in mind, we have compiled a list of hospital stocks worth buying based on their popularity among hedge funds we follow at the end of the third quarter.
We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.
#5 Universal Health Services, Inc. (NYSE:UHS)
-Hedge Funds with Long Positions (as of September 30): 44
-Aggregate Value of Hedge Funds’ Holdings (as of September 30): $1.04 billion
Universal Health Services, Inc. (NYSE:UHS)’s stock rose by 30% during the first seven months of the year, but has corrected considerably since then and now trades almost flat for the year. During the third quarter, when the stock dropped by 12%, the number of funds that were long in the company declined by six and the aggregate value of investors’ holdings also saw a drop of over 33%. For the third quarter of fiscal 2015, the company reported EPS of $1.53 on revenue of $2.23 billion versus analysts’ estimate of $1.55 and $2.22 billion, respectively. Billionaire Israel Englander’s Millennium Management reduced its stake in the company by 26% to 827,007 shares during the July-September period.
Follow Universal Health Services Inc (NYSE:UHS)
Follow Universal Health Services Inc (NYSE:UHS)
#4 Tenet Healthcare Corp (NYSE:THC)
-Hedge Funds with Long Positions (as of September 30): 44
-Aggregate Value of Hedge Funds’ Holdings (as of September 30): $1.18 billion
Tenet Healthcare Corp (NYSE:THC) has lost more than half of its market capitalization since the start of second-half of 2015. However, it suffered only a minor drop in popularity among hedge funds during the third quarter with the number of funds long the stock having declined by four during the third quarter. On December 16, analysts at Credit Suisse initiated coverage on Tenet Healthcare Corp (NYSE:THC)’s stock with a ‘Neutral’ rating and a $33 price target. Larry Robbins‘ Glenview Capital – which was the largest shareholder of the company at the end of third quarter – has been making full use of the decline in Tenet Healthcare Corp’s stock during the fourth quarter by purchasing more shares; it holds almost 17.9 million shares of the company, according to its latest SEC filings.
