5 Best Undervalued Stocks According to Hedge Funds

4. HCA Healthcare, Inc. (NYSE:HCA)

Number of Hedge Fund Holders: 66  

PE Ratio: 11.54  

HCA Healthcare, Inc. (NYSE:HCA) provides healthcare services. On January 21, Citi analyst Jason Cassorla reiterated a Buy rating on the stock with a price target of $277, underlining that the firm was a prudent set up for 2022 given the continued fluid backdrop and the shares could “grind higher as the company returns to a path to execution as COVID-19 rolls over.”

HCA Healthcare, Inc. (NYSE:HCA) is one of the favorite health stocks in the hedge fund universe. At the end of the fourth quarter of 2021, 66 hedge funds in the database of Insider Monkey held stakes worth $2.9 billion in HCA Healthcare, Inc. (NYSE:HCA), compared to 72 the preceding quarter worth $3.3 billion.

In its Q4 2020 investor letter, Bireme Capital, an asset management firm, highlighted a few stocks and HCA Healthcare, Inc. (NYSE:HCA) was one of them. Here is what the fund said:

“Since March we have increasingly tilted the long book towards stocks whose businesses will improve as the pandemic fades, a strategy we first discussed in our 1Q20 letter. Now that 2020 is — thankfully — over, let’s take a look back at some of our predictions from Q1.

HCA Healthcare (HCA) runs for-profit hospitals. In Q1, we said:

“We were shocked to see HCA initially trade down more than 50% in mid-March, in line with hotel companies and online travel agents. HCA will likely earn $11-12 in EPS when the COVID-19 crisis recedes, and we think the stock will trade back towards $150. Therefore, during Q1 we added we added ~80% to our shareholdings at an average price of roughly $90.”

If anything, this prediction was pessimistic. Despite the raging pandemic, 2020 revenue of $51.5b was actually up year-over-year. Earnings increased as well, with 2020 EPS of $10.93 and guidance of $12.10-13.10 in EPS for 2021. Said another way, in March HCA was trading for about 5 times 2021 earnings. We think that at $175 this stock is still cheap today and should trade at well over $200 per share.”