Hedge Fund Sentiment Is Stagnant On DaVita Inc (DVA)

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to the smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in DaVita Inc (NYSE:DVA)? The smart money sentiment can provide an answer to this question.

Hedge fund interest in DaVita Inc (NYSE:DVA) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that DVA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). 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 Annaly Capital Management, Inc. (NYSE:NLY), Jack Henry & Associates, Inc. (NASDAQ:JKHY), and Ares Management Corp (NYSE:ARES) to gather more data points.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s take a gander at the latest hedge fund action surrounding DaVita Inc (NYSE:DVA).

Jeffrey Gates of Gates Capital

Do Hedge Funds Think DVA Is A Good Stock To Buy Now?

At third quarter’s end, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DVA over the last 25 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Berkshire Hathaway, managed by Warren Buffett, holds the number one position in DaVita Inc (NYSE:DVA). Berkshire Hathaway has a $4.1965 billion position in the stock, comprising 1.4% of its 13F portfolio. Sitting at the No. 2 spot is Gates Capital Management, managed by Jeffrey Gates, which holds a $174.1 million position; 4.8% of its 13F portfolio is allocated to the stock. Some other peers that are bullish consist of Pedro Escudero’s DPM Capital, Larry Robbins’s Glenview Capital and Renaissance Technologies. In terms of the portfolio weights assigned to each position DPM Capital allocated the biggest weight to DaVita Inc (NYSE:DVA), around 97.3% of its 13F portfolio. Gates Capital Management is also relatively very bullish on the stock, dishing out 4.79 percent of its 13F equity portfolio to DVA.

Since DaVita Inc (NYSE:DVA) has faced falling interest from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of fund managers that slashed their full holdings by the end of the third quarter. At the top of the heap, Rick Slocum’s Harvard Management Co dropped the largest position of the “upper crust” of funds monitored by Insider Monkey, worth close to $49.2 million in stock, and Alec Litowitz and Ross Laser’s Magnetar Capital was right behind this move, as the fund sold off about $18.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to DaVita Inc (NYSE:DVA). These stocks are Annaly Capital Management, Inc. (NYSE:NLY), Jack Henry & Associates, Inc. (NASDAQ:JKHY), Ares Management Corp (NYSE:ARES), Pentair plc (NYSE:PNR), NovoCure Limited (NASDAQ:NVCR), Freshworks Inc. (NASDAQ:FRSH), and CF Industries Holdings, Inc. (NYSE:CF). This group of stocks’ market valuations match DVA’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $520 million. That figure was $4811 million in DVA’s case. CF Industries Holdings, Inc. (NYSE:CF) is the most popular stock in this table. On the other hand Annaly Capital Management, Inc. (NYSE:NLY) is the least popular one with only 15 bullish hedge fund positions. DaVita Inc (NYSE:DVA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DVA is 67.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately DVA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DVA were disappointed as the stock returned -18.7% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.