Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about HCA Healthcare Inc (NYSE:HCA) and compare its performance to hedge funds’ consensus picks in 2019.
Is HCA Healthcare Inc (NYSE:HCA) a superb investment today? The best stock pickers are getting more optimistic. The number of long hedge fund positions inched up by 4 lately. Our calculations also showed that HCA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Larry Robbins of Glenview Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to take a gander at the latest hedge fund action surrounding HCA Healthcare Inc (NYSE:HCA).
How are hedge funds trading HCA Healthcare Inc (NYSE:HCA)?
Heading into the fourth quarter of 2019, a total of 55 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HCA over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in HCA Healthcare Inc (NYSE:HCA) was held by Glenview Capital, which reported holding $643.1 million worth of stock at the end of September. It was followed by Lyrical Asset Management with a $370.3 million position. Other investors bullish on the company included Arrowstreet Capital, AQR Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Cryder Capital allocated the biggest weight to HCA Healthcare Inc (NYSE:HCA), around 13.86% of its 13F portfolio. Tavio Capital is also relatively very bullish on the stock, setting aside 9.12 percent of its 13F equity portfolio to HCA.
Now, specific money managers were breaking ground themselves. Redmile Group, managed by Jeremy Green, established the largest position in HCA Healthcare Inc (NYSE:HCA). Redmile Group had $28.4 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley’s Polar Capital also initiated a $13.4 million position during the quarter. The other funds with new positions in the stock are Sander Gerber’s Hudson Bay Capital Management, Matthew Hulsizer’s PEAK6 Capital Management, and Lee Ainslie’s Maverick Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as HCA Healthcare Inc (NYSE:HCA) but similarly valued. We will take a look at Marriott International Inc (NYSE:MAR), BB&T Corporation (NYSE:BBT), Dollar General Corp. (NYSE:DG), and SYSCO Corporation (NYSE:SYY). This group of stocks’ market caps match HCA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MAR | 37 | 2446310 | 10 |
| BBT | 26 | 370776 | 3 |
| DG | 45 | 2157250 | 8 |
| SYY | 22 | 3016032 | -9 |
| Average | 32.5 | 1997592 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $1998 million. That figure was $2621 million in HCA’s case. Dollar General Corp. (NYSE:DG) is the most popular stock in this table. On the other hand SYSCO Corporation (NYSE:SYY) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks HCA Healthcare Inc (NYSE:HCA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately HCA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HCA were disappointed as the stock returned 21% so far in 2019 (through 12/23) and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
