Is DVA Stock A Buy or Sell?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding DaVita Inc (NYSE:DVA).

Is DVA stock a buy? DaVita Inc (NYSE:DVA) was in 32 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 43. DVA has experienced a decrease in enthusiasm from smart money of late. There were 34 hedge funds in our database with DVA positions at the end of the third quarter. Our calculations also showed that DVA isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 124 percentage points since March 2017 (see the details here).

Paul Reeder of PAR Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 website. Keeping this in mind let’s view the new hedge fund action encompassing DaVita Inc (NYSE:DVA).

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

At the end of the fourth quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 38 hedge funds with a bullish position in DVA a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

The largest stake in DaVita Inc (NYSE:DVA) was held by Berkshire Hathaway, which reported holding $4237.6 million worth of stock at the end of December. It was followed by DPM Capital with a $160 million position. Other investors bullish on the company included PAR Capital Management, Gates Capital Management, 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 71.55% of its 13F portfolio. PAR Capital Management is also relatively very bullish on the stock, dishing out 4.17 percent of its 13F equity portfolio to DVA.

Judging by the fact that DaVita Inc (NYSE:DVA) has faced a decline in interest from the smart money, it’s easy to see that there exists a select few hedge funds that decided to sell off their positions entirely last quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management said goodbye to the largest stake of the 750 funds followed by Insider Monkey, valued at about $12.3 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund cut about $10.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as DaVita Inc (NYSE:DVA) but similarly valued. These stocks are Raymond James Financial, Inc. (NYSE:RJF), Packaging Corporation Of America (NYSE:PKG), Credicorp Ltd. (NYSE:BAP), Pembina Pipeline Corp (NYSE:PBA), Entegris Inc (NASDAQ:ENTG), Avery Dennison Corporation (NYSE:AVY), and Sociedad Quimica y Minera (NYSE:SQM). This group of stocks’ market values are closest to DVA’s market value.

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As you can see these stocks had an average of 20.7 hedge funds with bullish positions and the average amount invested in these stocks was $384 million. That figure was $4814 million in DVA’s case. Raymond James Financial, Inc. (NYSE:RJF) is the most popular stock in this table. On the other hand Pembina Pipeline Corp (NYSE:PBA) is the least popular one with only 13 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 70.6. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th and beat the market again by 1.5 percentage points. Unfortunately DVA wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on DVA were disappointed as the stock returned -6.4% since the end of December (through 4/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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