Was Billionaire Larry Robbins Right to Recommend These Stocks?

It’s often a good idea to look back at a hedge fund’s performance, not just from the point of view of its returns, but also to take a deeper look at some recommendations the hedge fund manager made in the past, the analysis that they provided to explain their position. That’s why we have taken Glenview Capital, which has been one of the best-performing hedge funds, which returned 301% between 2001 and 2010 and was up by 21% in the first 10 months of 2017, and looked at some of the recommendations that the fund’s founder and CEO Larry Robbins made a couple of years ago. In this article, we are going to discuss two stocks that Mr. Robbins pitched at the 2014 Sohn Canada conference: Thermo Fisher Scientific Inc. (NYSE:TMO) and Endo International PLC (NASDAQ:ENDP), as well as two stocks that Glenview discussed in its letters to investors: Laboratory Corp. of America Holdings (NYSE:LH) and Allergan plc (NYSE:AGN).

When tracking individual hedge funds and scanning their filings with the Securities and Exchange Commission, you can get many interesting investment ideas. However, you will often have a hard time imitating these funds due to the size of their portfolios. Of course, you can take a closer look at each one of their stock picks and analyze them in order to find their potential, but it’s a lot of work. That’s why reading hedge fund letter to investors is useful, because often hedge funds discuss their bets and present, at least partially, their reasoning behind some of their moves. At Insider Monkey, we publish hedge fund investor letters and you can read them as soon as they are out by signing up on our website and adding the funds you are interested in to your watchlist in order to receive email notifications with various updates.

We follow Glenview Capital alongside more than 600 other hedge funds, as part of our flagship small-cap strategy. Every quarter we analyze these funds’ 13F portfolios and determine the best performing funds based on their stock picks. In order to generate alpha, we identify the best stocks that these funds are collectively bullish on. Since its inception in May 2014, our flagship strategy has returned over 90%, beating the S&P 500 ETF (SPY) by around 36 percentage points. We share the stock picks from our strategy in our quarterly premium newsletters that you can access by signing up here.

Glenview Capital holds a diversified equity portfolio, but in the last decade it has been heavily investing in healthcare stocks, which amass over 40% of its 13F portfolio. Healthcare stocks are also those that Mr. Robbins usually discusses either in his letters to Glenview investors or at the Ira Sohn Conferences. For example, in 2012, he discussed hospital stocks and in 2014 he presented his thesis on managed care. At the conference that took place earlier this year, he presented his bullish thesis on the Express Scripts Holding Co (NASDAQ:ESRX) and CIGNA Corporation (NYSE:CI), and CVS Health Corp (NYSE:CVS) and Aetna Inc (NYSE:AET) mergers and McKesson Corporation (NYSE:MCK). However, we are going now to take a look at some of the stocks that he pitched at past conferences and see how they performed in the meantime.

At the Sohn Canada Conference in 2014, Mr. Robbins mentioned four companies Thermo Fisher Scientific Inc. (NYSE:TMO), Danaher Corporation (NYSE:DHR), Endo International plc (NASDAQ:ENDP), and Actavis. In its latest 13F filing, Glenview Capital disclosed positions in two of these companies. It reported owning 2.96 million shares of Thermo Fisher Scientific Inc. (NYSE:TMO) as of the end of March, down by 10% over the quarter, and also disclosed holding 21.49 million shares of Endo International plc (NYSE:ENDP), up by 11% over the quarter.

When pitching the stocks, Mr. Robbins said that they fall into the category of companies with excess cash on the balance sheet, debt capacity and defensive growth.

Thermo Fisher Scientific Inc. (NYSE:TMO) has been in Glenview’s equity portfolio for over a decade, while since 2014, the stock has surged by 77%. In 2016, the company acquired Affymetrix to strengthen its genetic analysis products segment. It also made a bit to buy maker of water filtration and purification systems Pall in 2015, but was eventually outbid by Danaher Corporation (NYSE:DHR). In addition, over the last couple of years, Thermo Fisher Scientific Inc. (NYSE:TMO) has seen a consistent and stable revenue and EPS growth. For the first quarter, the company reported non-GAAP EPS of $2.50, up by 20% on the year, while revenue of $5.83 billion went up by 23%; both figures beat the consensus estimates.

On the other hand, Endo International plc (NASDAQ:ENDP)‘s stock is down by 88% over the last three years. Glenview Capital closed the stake in the company during the fourth quarter of 2015, but re-initiated it in the third quarter of the following year. Endo International plc (NASDAQ:ENDP)’s stock declined amid a crackdown on opioids. Last year, the company was requested by the FDA to remove Opana ER on concerns of an opioid abuse risk. Moreover, a number of state and local governments have accused Endo International plc (NASDAQ:ENDP) of contributing to the opioid epidemic. In addition, Endo International plc (NASDAQ:ENDP) is facing increased competition. In the first quarter, Endo saw its revenue drop by 55% on the year to $249 million amid a loss of exclusivity for ezetimibe and quetiapine ER. To diversify its generic portfolio, Endo International plc (NASDAQ:ENDP) has reached a deal to acquire sterile injectible products manufacturer Somerset Therapeutics for $190 million.

Laboratory Corp. of America Holdings (NYSE:LH) is another long-term holding in Glenview’s 13F portfolio. During the first quarter, the fund cut its stake by 30% to 1.86 million shares. In its letter to investors for the second quarter of 2015, Glenview discussed  Laboratory Corp. of America Holdings (NYSE:LH), pointing out that over the previous 13 years, the company had seen a 3.5 times earnings growth as well as an improvement in fundamentals.

In outlining its expectations of  Laboratory Corp. of America Holdings (NYSE:LH), Glenview said they expected the company to register mid-to-high teens EPS growth, with base case P/E of 14 in 2016 and 12 in 2017.

In the last three years,  Laboratory Corp. of America Holdings (NYSE:LH)’s shares have advanced by over 55%. The stock traded at around 20 times earnings in 2016 and 22 times in 2017 and currently has an earnings multiple of 15.6. In 2017, Laboratory Corp. of America Holdings (NYSE:LH) saw revenue growth of 8.2% to $10.21 billion, while adjusted EPS went up by 8.7% to $9.60. A year earlier, the company’s revenue and adjusted EPS appreciated by 11% and 11.6%, respectively. For 2018, Laboratory Corp. of America Holdings (NYSE:LH) expects revenue growth between 9.5% and 11.5% and EPS between $11.30 and $11.70.

At the 2014 Sohn Canada conference, Larry Robbins pitched Actavis, which a year later acquired Allergan and changed its name to Allergan plc (NYSE:AGN). In its letter to investors for the third quarter of 2015, Glenview Capital discussed Allergan plc (NYSE:AGN), praising the sale of the generics business and saying that it expected the company to use the proceeds to buy back stock or to acquire other branded pharmaceutical companies. At the same time, Glenview estimated that Allergan was growing its bottom line at around 20% per year and the core revenue had an organic growth of 9%.

During the first quarter of 2018, Glenview added some 372,300 shares to its stake in Allergan plc (NYSE:AGN), taking the position to 1.53 million shares worth $256.96 million. Last year, it acquired Zeltiq Aesthetics and LifeCell to boost its portfolio. However, its stock has lost 32% in the last 52 weeks, which prompted a couple of activist investors to get impatient and step up and demand more changes. At the beginning of June, David Tepper‘s Appaloosa Management and Doug Silverman‘s Senator Investment Group issued some letter that they sent to Allergan’s board of directors. In one of the letters, the activists express their disappointment by the company’s “half-hearted attempt to restore strategic momentum.” Among other things, the investors asked for management and board changes and urged Allergan plc (NYSE:AGN) to halt acquisitions. At the end of May, it was reported that Allergan plc (NYSE:AGN) had completed its strategic review and would divest its women’s health and infectious disease businesses.

Disclosure: none