According to a recent study by CIT, a reputable firm that is involved in financing and advisory services to the healthcare sector, healthcare executives seem rather optimistic about revenue growth and overall growth during 2015. Since healthcare costs are reaching insupportable levels, a notable opportunity in the healthcare sector at the moment is the switch from volume- to value-based care (VBC) in an effort to reduce costs and deliver more value to the consumer. Therefore, the healthcare sector outlook in 2015 is quite positive as the industry is dominated by speedy and constant change. The S&P 500 Health Care Index has increased by slightly more than 9% since the beginning of the current year, which is a clear sign that the industry is on the right path. It’s commonly known that healthcare investing involves a multidimensional approach to identify the underlying drivers of this industry, therefore, we will put forward a list of healthcare stocks that are the most popular among some of the top hedge funds in the world, some of which are entirely healthcare-focused. These funds know the ins-and-outs of the industry, as well as the challenges that it faces better than anyone. Here then is the list of the top five healthcare picks that might improve your portfolio’s prospects in the near future.
But first, let’s take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis point per month during the same period. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 84 percentage points, returning over 144% (read the details here). Hence a retail investor needs to isolate himself from the herd and take advantage of the prevalent arbitrage opportunities in the market by concentrating on small-cap stocks.
The most popular healthcare stock among hedge funds is without a doubt Actavis PLC (NYSE:ACT). 157 hedge funds and investment firms from our database hold equity stakes in Actavis at the end of the first quarter, which marks an increase of almost 20% and makes it not only the most popular healthcare stock, but the most popular stock overall as well. Meanwhile, the value of the holdings in Actavis PLC (NYSE:ACT) increased to $21.97 billion from $13.99 billion during the first quarter. Despite the fact that a federal appeals court does not permit Actavis to sell the newer and more expensive version of the Namenda IR drug before competition emerges, the company’s growth revenue for the last quarter on a year-over-year basis reached 59.5%, which is well beyond the industry average of 8%. Actavis PLC (NYSE:ACT) generated revenues amounting to $4.23 billion, which likely played a role in the company’s shares gaining 17% year-to-date. One of the hedge funds that increased its equity holdings in Actavis PLC (NYSE:ACT) during the first quarter was Douglas Hirsch’s Seneca Capital, which holds the stock as its top pick.
Follow Bill Ackman's Pershing Square
In the second spot on our list of the five most popular health care stocks is Valeant Pharmaceuticals International Inc. (NYSE:VRX). The number of hedge funds owning equity stakes in this company slightly increased to 104 from 102 during the last reporting period. Meanwhile, the value of the total holdings spiked by over 42% over the course of the first quarter, increasing to $20.11 billion from just $14.08 billion. Valeant Pharmaceuticals International Inc. (NYSE:VRX)’s stock has achieved an exorbitant increase of nearly 66% since the beginning of the current year, however the uptrend might keep going as the company plans to expand its operations in the fast-growing Asian market. According to Valeant’s CEO, the company will keep making acquisitions so as to feed the unmet need in Asia and other regions. Bill Ackman’s Pershing Square and Jeffrey Ubben’s ValueAct Capital are among the largest equity holders of the Montreal-based Valeant Pharmaceuticals International Inc. (NYSE:VRX).