We track 13F filings from hedge funds and other notable investors for a variety of purposes. For one, we have discovered that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year (read more about small cap stock picks) and other strategies are likely possible as well. We also think that it’s useful to treat individual 13Fs as a list of recommendations from a top investor, providing a brief overview of some of their favorite stocks so that other market players can discover potentially interesting names. When we looked at the filing from Larry Robbins’s Glenview Capital we noticed a number of healthcare stocks among his top picks (see the full list of stocks Glenview reported owning). Here are the fund’s five largest healthcare holdings by market value as of the end of December:
Medical laboratory products and services company Life Technologies Corp. (NASDAQ:LIFE) was Glenview’s largest position at over 11 million shares. At a market capitalization of almost $11 billion, the stock trades at 26 times trailing earnings. Wall Street analysts expect high earnings growth, with the result being that the forward P/E is only 13. Indeed, net income was up 18% last quarter compared to the fourth quarter of 2011; however, revenue actually fell slightly and so we have doubts that Life Technologies Corp. (NASDAQ:LIFE) can continue this growth rate. As a result we can’t recommend the stock at this point.
Robbins and his team initiated a position of almost 14 million shares in $4.7 billion market cap hospital and outpatient health center provider Tenet Healthcare Corp (NYSE:THC). While many hospitals are trading at low earnings multiples, likely at least in part due to uncertainty concerning future regulations, even the forward P/E in Tenet’s case is 13. The stock has roughly doubled in the last year, thanks to a steady rise which began last August. We’d note that statistically Tenet Healthcare Corp (NYSE:THC) has high exposure to the broader economy with a beta of 2.3. We think there may be better values in the industry for investors to begin looking.
Health Management Associates Inc (NYSE:HMA), a hospital company with a geographic concentration in the South and Southeast, was another of Glenview’s top picks. Earnings at Health Management Associates were up sharply in percentage terms in the fourth quarter of 2012 versus a year earlier, though revenue growth was much more limited. This hospital stock has been another big gainer, rising 74% in the last year. The earnings multiples are a bit lower here than at Tenet and so even though they aren’t that low in absolute terms the company may have better value prospects.