Welch Capital’s Must-Buy Healthcare Stocks

Leighton Welch‘s Welch Capital is a long/short fund that uses a private equity approach to public equity investing. The fund uses a top-down macro view while constructing its portfolio and completes its investing approach through in-depth bottom-up analysis. The fund was formed in 1996 and is managed by two investment principals with more than 25 years of experience each. They focus on sectors such as technology and healthcare.

Welch Capital has recently released its 13F filing for the third quarter, which revealed that the fund had an equity portfolio valued at $306.90 million at the end of September, with 23% represented by the healthcare sector. In the article below we will take a look at five healthcare stocks that Welch Capital is bullish on and will see what is the general hedge fund sentiment towards them.

We determine hedge fund sentiment by analyzing the equity portfolios of some of the best-performing hedge funds and institutional investors. Through extensive research, we have determined that the due diligence that these investors employ, as well as their long-term focus makes them perfect targets to emulate. However, the results of our analysis have also showed that the small-cap picks of these funds can generate much better returns, with the 15 most popular small-cap stocks beating the market by an average of 95 basis points per month (read more details here).

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Steris Corp. (NYSE:STE) represents Welch’s third-largest holding in terms of value, as the fund held some 180,400 shares worth $13.19 million at the end of September. Steris is one of the world’s largest infection prevention, decontamination, and surgical and critical care company with a presence in more than 60 countries. For the second quarter of fiscal 2017, the company posted EPS of $0.89 and revenue of $646.42 million, which missed the consensus estimates by $0.01 and $23.82 million, respectively. The company has given good returns to its investors with the stock appreciating by more than 130% over the last five years. The number of funds from our database long Steris Corp shot up to 30 from 11 in the second quarter, while the total value of their holdings increased by $54 million to $647 million.

Premier Inc (NASDAQ:PINC) is a leading American healthcare improvement company that provides integrated data and analytics, supply chain solutions, advisory services and performance improvement services to the healthcare industry. Welch Capital owns around 368,900 shares of the company valued at $11.93 million as of the end of September. The company recently signed a collaborate deal with Merck & Co Inc (NYSE:MRK) for the co-development of solutions to help improve population health. Initially, the companies will focus on reducing fracture rates for at-risk osteoporosis patients. The stock has declined by 6% over the last year. The company reported revenue of $301.42 million for the fourth quarter of fiscal 2016 (ended June 30), which topped the estimates by $1.10 million, while EPS of $0.36 was lower  than the expected $0.38. Around 13% of the company’s float was held by 14 funds tracked by us at the end of the second quarter.

In Zimmer Biomet Holdings Inc (NYSE:ZBH), Welch Capital reported a $10.29 million stake containing 79,100 shares. The company is engaged in production and sale of spine, bone healing, dental implants, and related surgical products. The stock is slightly down year-to-date, mainly due to the 15% drop registered on Monday when the company released its financial results and cut its full-year revenue growth outlook to 1.65%-1.9% from 2.5%-3%. The company reported revenue of $1.83 billion for the third quarter, up by 4% on the year and earnings of $0.78 per share, up from $0.11 posted a year earlier. However, its full-year EPS guidance was reduced to $7.90-$7.95 from $7.90-$8.00. Even though the number of funds tracked by us holding shares of Zimmer Biomet declined to 37 from 45 during the second quarter, the total value of their holdings appreciated by 9.7% to $1.38 billion.

Amsurg Corp (NASDAQ:AMSG) represents a new position in Welch’s equity portfolio as the fund held 147,180 shares worth $9.87 million at the end of September. Amsurg is an owner and operator of ambulatory surgery centers (ASCs) in the United States. Its stock is trading near its 52-week low price and it has fallen by 16% year to date. Earlier this week, the company has reported third-quarter revenue of $822.20 million, up by 26.4% over the year and $51.91 million above estimates. Its EPS of $1.13 also slightly topped expectations by $0.01. Aproximately $248 million worth of Amsurg shares was held in aggregate by 30 hedge funds that we track on June 30.

Last, but not least, in Tenet Healthcare Corp (NYSE:THC), Welch boosted its position by over 90% to  380,590 shares worth $8.62 million in the third quarter. Overall, the healthcare service company saw the number of funds from our database bullish on its stock rise to 39 from 34 between April and June. The company operates under three segments: Hospital Operations and other, Ambulatory Care and Conifer. In the third quarter, its revenue went up by 3.4% on the year to $4.85 billion and was $80 million higher than expected. On the other hand, the company’s EPS of $0.16 missed the consensus estimate by $0.03. The company provided an EPS and revenue guidance of $0.17-$0.22 and $4.9-$5 billion for the fourth quarter.

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