Broyhill Asset Management, a boutique investment firm, released its fourth-quarter 2023 investor letter. A copy of the same can be downloaded here. The past two years were mirror images of each other for equity investors. Global stocks increased by 22% in 2022 after declining by 18% the year before. The fourth quarter saw exceptionally high portfolio activity. Although Broyhill’s fully invested managed funds underperformed year-over-year broader equities benchmarks, they avoided problems during the falls in 2021 and 2022, and their relative performance is still well above any longer-term horizon. In addition, you can check the top 5 holdings of the fund to know its best picks in 2023.
Broyhill Asset Management featured stocks such as Fresenius Medical Care AG (NYSE:FMS) in the fourth quarter 2023 investor letter. Headquartered in Bad Homburg, Germany, Fresenius Medical Care AG (NYSE:FMS) provides dialysis and related services. On February 16, 2024, Fresenius Medical Care AG (NYSE:FMS) stock closed at $21.11 per share. One-month return of Fresenius Medical Care AG (NYSE:FMS) was 7.98%, and its shares gained 5.66% of their value over the last 52 weeks. Fresenius Medical Care AG (NYSE:FMS) has a market capitalization of $12.388 billion.
Broyhill Asset Management stated the following regarding Fresenius Medical Care AG (NYSE:FMS) in its fourth quarter 2023 investor letter:
“We established a position in Fresenius Medical Care AG (NYSE:FMS), a German healthcare company specializing in kidney dialysis and related products, at “Peak Obesity” in October of last year. Before the word “coronavirus” entered the world’s vernacular, dialysis volumes predictably grew at 3% – 4% annually, which made for a pretty good business for industry behemoths Davita (which counts Berkshire Hathaway as its largest shareholder) and Fresenius, who dominate the US market. That trend ground to a halt as mortality ratesfor patients on dialysis, which typically average 20% – 25% per year, surged during the pandemic, sending “predictable” volume growth sharply negative. Things went from bad to worse as new “miracle drugs” promised to put an end to obesity, lower the prevalence of diabetes and kidney disease, and “permanently” impair the value of businesses serving these critical markets. We think investors might have gotten a bit out in front of their skis on this one, considering that Fresenius shed nearly three-quarters of its market capitalization from the pandemic’s peak. To start, the sheer number of assumptions across dozens of interrelated variables required to forecast these drugs’ long-term implications makes for an incredibly wide range of outcomes. Yet, at current prices, shares appear to discount only the worst possible scenarios. It’s just not that simple. For starters, the timing of any potential impact is up for grabs at this point. Even assuming the drugs are widely available (they are not), are fully covered by Medicare (they are not), and are taken forever (they are not), kidney disease progression takes place over many years, so any impact on dialysis volumes would not appear overnight. At the same time, any reduction in mortality rates (another benefit of these drugs) would extend the time patients are on dialysis, providing upside to current numbers, something the consensus conveniently ignores in their models. Considering that less than 40% of patients are on dialysis because of diabetes and as many as half of those “crash” into dialysis (meaning they are not diagnosed until they are hospitalized), the potential impact here seems far less worrisome than overwhelmingly bearish investors would lead you to believe. While only one in four analysts currently rate the shares a buy, 20 analysts rate the stock a hold or sell, yet still fail to forecast any material deterioration in the business. Instead, the biggest driver of the bearish call appears to be valuation. With the stock trading near a 50% discount to European peers and those peer multiples already considerably depressed, we find that argument challenging at best. As we see it, shares are trading at 12x depressed earnings, sentiment is thoroughly washed out, and new additions to the board and the executive team are correctly focused on increasing margins and returns.”
Patients connected to dialysis machines in a hospital ward, highlighting the company’s dialysis and intravenous therapies.
Fresenius Medical Care AG (NYSE:FMS) is not on our list of 30 Most Popular Stocks Among Hedge Funds. At the end of the fourth quarter, Fresenius Medical Care AG (NYSE:FMS) was held by 9 hedge fund portfolios, down from 13 the previous quarter, according to our database.
We discussed Fresenius Medical Care AG (NYSE:FMS) in another article and shared the list of best German stocks to buy. In addition, please check out our hedge fund investor letters Q4 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
