Hedge Funds Are Betting On DaVita Inc (DVA)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on June 30th. We at Insider Monkey have made an extensive database of more than 873 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded DaVita Inc (NYSE:DVA) based on those filings.

DaVita Inc (NYSE:DVA) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. DaVita Inc (NYSE:DVA) was in 39 hedge funds’ portfolios at the end of June. The all time high for this statistic is 43. There were 34 hedge funds in our database with DVA holdings at the end of March. Our calculations also showed that DVA isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Jeffrey Gates of Gates Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s go over the key hedge fund action regarding DaVita Inc (NYSE:DVA).

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

At Q2’s end, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from the first quarter of 2020. By comparison, 35 hedge funds held shares or bullish call options in DVA a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the number one position in DaVita Inc (NYSE:DVA), worth close to $4.347 billion, comprising 1.5% of its total 13F portfolio. The second most bullish fund manager is Jeffrey Gates of Gates Capital Management, with a $172 million position; 5% of its 13F portfolio is allocated to the company. Remaining members of the smart money with similar optimism consist of Ken Griffin’s Citadel Investment Group, Pedro Escudero’s DPM Capital and Larry Robbins’s Glenview Capital. In terms of the portfolio weights assigned to each position DPM Capital allocated the biggest weight to DaVita Inc (NYSE:DVA), around 97.22% of its 13F portfolio. Gates Capital Management is also relatively very bullish on the stock, designating 4.96 percent of its 13F equity portfolio to DVA.

As aggregate interest increased, some big names were breaking ground themselves. Harvard Management Co, managed by Rick Slocum, initiated the largest position in DaVita Inc (NYSE:DVA). Harvard Management Co had $49.2 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $38 million position during the quarter. The other funds with brand new DVA positions are Michael Rockefeller and KarláKroeker’s Woodline Partners, Ken Grossman and Glen Schneider’s SG Capital Management, and Ray Dalio’s Bridgewater Associates.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as DaVita Inc (NYSE:DVA) but similarly valued. We will take a look at The Interpublic Group of Companies Inc (NYSE:IPG), Nordson Corporation (NASDAQ:NDSN), Vail Resorts, Inc. (NYSE:MTN), The Gap Inc. (NYSE:GPS), FactSet Research Systems Inc. (NYSE:FDS), Quanta Services Inc (NYSE:PWR), and Steel Dynamics, Inc. (NASDAQ:STLD). 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 34.6 hedge funds with bullish positions and the average amount invested in these stocks was $675 million. That figure was $5132 million in DVA’s case. The Gap Inc. (NYSE:GPS) is the most popular stock in this table. On the other hand Steel Dynamics, Inc. (NASDAQ:STLD) is the least popular one with only 26 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 75.4. 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 21.8% in 2021 through October 11th and beat the market again by 4.4 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 -7.4% since the end of June (through 10/11) 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.