Billionaire Larry Robbins’ Top Healthcare Picks for Q2

Larry Robbins‘ Glenview Capital has been underperforming the broader market and the overall hedge fund industry for over a year now. However, this underperformance hasn’t reduced the fund’s conviction in its healthcare picks or the healthcare sector in general. If anything, the fund has started relying even more on the sector to help it rebound from its downturn. This interesting detail was uncovered in the fund’s latest 13F filing with the Securities and Exchange Commission. According to the filing, Glenview Capital’s U.S equity portfolio was worth $13.68 billion at the end of March, down by 23% quarter-over-quarter. However, healthcare stocks increased to a 58% stake of the portfolio from 55% at the end of 2015. Nor is this a new phenomenon; healthcare stocks have consistently accounted for bigger chunks of the fund’s portfolio since the end of the first quarter of 2015, when they accounted for just 36% of the value of the fund’s equity portfolio. Since the fund is betting big on healthcare stocks to improve its performance going forward, in this article we will take a look at the fund’s top five healthcare picks at the end of first quarter and discuss how they have performed so far in 2016.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

#5 Laboratory Corp. of America Holdings (NYSE:LH)

– Shares Owned by Glenview Capital (as of March 31): 5.45 million

– Value of Holding (as of March 31): $640 million

Let’s start with Laboratory Corp. of America Holdings (NYSE:LH), which has been a part of Glenview Capital’s equity portfolio since the second quarter of 2015. During the first quarter, the fund lowered its holding in the medical diagnostics company by 4%. Laboratory Corp. of America Holdings (NYSE:LH)’s stock has seen a consistent uptrend for the past several years, appreciating by over 2,500% since January 1999. Though at the beginning of 2016 it seemed like the stock had ended its multi-year bull run, the rally it has seen since mid-February seems to suggest that wasn’t the case. For its first quarter, the company reported EPS of $2.02 on revenue of $2.30 billion, topping analysts’ estimates of EPS of $1.96 on revenue of $2.19 billion. Laboratory Corp. of America Holdings launched Epi proColonon May 9, which is the first FDA-approved DNA-based blood test for colorectal cancer (CRC) screening. With ownership of 2.4 million shares of the company, Jacob Gottlieb‘s Visium Asset Management trailed Glenview Capital as the largest shareholder of the company among funds tracked by us at the end of March.

#4 AbbVie Inc (NYSE:ABBV)

– Shares Owned by Glenview Capital (as of March 31): 13.69 million

– Value of Holding (as of March 31): $781.78 million

Amid a 2.5% drop in AbbVie Inc (NYSE:ABBV)’s stock during the first quarter, Glenview Capital inched up its holding in the company by 2%. Up until last week, AbbVie Inc (NYSE:ABBV) was one of the few large biopharmaceutical companies whose stock was trading in the green for the year. However, shares of the company are currently trading down marginally for the year, owing to a recent decline after The U.S. Patent and Trademark Office’s Patent Trial and Appeal Board granted Coherus Biosciences Inc (NASDAQ:CHRS)’s request for an inter partes review of five patents which protect Abbvie’s best-selling drug Humira. Despite this patent ruling, most analysts continue to remain bullish on AbbVie due to the company’s strong drug pipeline and the almost 4% annual dividend yield that it currently sports, which they believe limits the downside of the stock. Neil Woodford‘s Woodford Investment Management boosted its stake in AbbVie by 26% to 11.06 million shares during the first quarter.

Billionaire Larry Robbins three favorite healthcare stocks are discussed on the next page.

#3 CIGNA Corporation (NYSE:CI)

– Shares Owned by Glenview Capital (as of March 31): 6.1 million

– Value of Holding (as of March 31): $836.48 million

After boosting its stake in CIGNA Corporation (NYSE:CI) by 52% during the final quarter of 2015, Glenview trimmed its holding in the company by 13% during the first quarter. Shares of CIGNA Corporation (NYSE:CI) have largely been range-bound for the past eight months but are nonetheless trading down by over 11% in 2016. On May 6, the company reported its first quarter financial results, declaring EPS of $2.32 on revenue of $9.90 billion, which beat EPS estimates of $2.16 but missed revenue estimates of $9.98 billion. Within a few days of the company reporting those results, several prominent analysts on the Street reduced their price targets on the stock. However, analysts at RBC Capital took a more positive tone in a note released on May 18, reiterated their ‘Sector Perform’ rating on the stock, while upping their price target on it to $174 from $169. Richard Barrera‘s Roystone Capital Partners also reduced its stake in the company during the first quarter, by 19% to almost 1.02 million shares.

#2 HCA Holdings Inc (NYSE:HCA)

– Shares Owned by Glenview Capital (as of March 31): 14.68 million

– Value of Holding (as of March 31): $1.15 billion

HCA Holdings Inc (NYSE:HCA) was a major winner for Glenview Capital from the first quarter of 2011, when the fund initiated its stake in the company, until last July, as its stock appreciated by almost 300% during that time. However, all of that changed in the second-half of 2015, when HCA Holdings Inc (NYSE:HCA)’s stock plummeted heavily, losing nearly one-third of its value. Rather than growing fearful after those heavy declines, the fund proceeded to boost its holding in the company by 160% during the final quarter of 2015 and by another 2% during the first quarter. The conviction that Glenview has displayed in the stock has been paying off rather well this year, with HCA Holdings shares having appreciated by nearly 13%. Though the stock has corrected a little in the last few days despite the company reporting better-than-expected first quarter numbers, most analysts don’t see it as a worrisome sign. Scion Asset Management, headed by Michael Burry of ‘The Big Short’ fame, upped its stake in HCA Holdings by 34% to 100,000 shares during the first quarter.

#1 Humana Inc (NYSE:HUM)

– Shares Owned by Glenview Capital (as of March 31): 6.42 million

– Value of Holding (as of March 31): $1.17 billion

Though Glenview Capital cut its stake in Humana Inc (NYSE:HUM) by 22% during the first quarter, the company continued to remain the fund’s largest equity holding going into the second quarter. Shares of Humana Inc (NYSE:HUM) are currently trading down by 5.6% year-to-date as it awaits regulatory approval for its merger with Aetna Inc (NYSE:AET). While it has been several months since the $37 billion Aetna/Humana merger was announced and the companies have received approval  from a number of states in the meantime, several analysts and investors are still skeptical about the completion of the merger due to the falling of several high-profile deals in the past few months. However, Mr. Robbins, while speaking at the recently concluded Ira Sohn Conference, which was attended by Insider Monkey, said that he remains confident that the deal will be completed soon. Hedge funds that initiated a stake in the company during the first quarter included Simon Davies‘ Sand Grove Capital Partners, which purchased 84,800 shares.

Disclosure: None