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5 Stock Picks from the Hedge Fund Manager Who Saw The Pandemic Coming

The day the S&P 500 Index reached its all-time high Sio Capital’s Michael Castor said the following about the coronavirus threat:

“The risk is small but not negligible that coronavirus (COVID-19) will become pandemic. The virus is transmissible during the 14-day incubation period when infected carriers are asymptomatic. This is in contrast to diseases like Ebola, which are contagious only when symptoms are present.

There will be some negative impact on economic activity as China (and other regions to variable degrees) have curtailed business activity, travel, and tourism to prevent the spread of the virus. Interestingly, epidemiologic data suggests that curtailing travel does little to prevent viruses from becoming epidemics.”

Michael Castor is a true hedge fund manager. His net market exposure usually hovers near zero. That means he doesn’t rely on bull markets to generate positive returns, unlike most other “hedge funds”. You can observe Castor’s stock picking ability especially during bear markets. When most investors lose money, Castor usually delivers positive returns. For example, Sio Capital returned 10.8% in 2008 when the S&P 500 Index lost 37%. How many hedge fund managers do you know were able to deliver positive returns in 2008?

More recently in 2018 when the S&P 500 Index lost 4.4%, Sio Capital delivered a net gain of 23.3%. So, you shouldn’t be surprised to hear that Michael Castor’s Sio Capital delivered a net return of 7.2% in Q1 versus a 19.6% loss for the S&P 500 Index.

There were only a few investors who saw this coronavirus induced recession and bear market coming. Insider Monkey’s Inan Dogan was also among these investors as he warned investors in this article. In the video below we shared Michael Castor’s latest views regarding the coronavirus pandemic. He shares his thoughts about effectiveness of hydroxycholorquine and Gilead Sciences Inc (NASDAQ:GILD)’s remdesivir. He also talks about what we should expect in terms of economic recovery until the end of 2021.

In this article we are going to take a look at some of Michael Castor’s bullish stock picks. We mentioned Gilead above. Castor initiated a brand new position in GILD during the fourth quarter of 2019. He didn’t provide an update regarding his Gilead position in his latest investor letter.

The second stock in our list is Amgen Inc. (NASDAQ:AMGN) which is currently among Castor’s top 5 positions. Amgen shares lost only 4% year-to-date and outperformed the market. Overall hedge fund sentiment towards Amgen is above average but Amgen isn’t among the top 20 hedge fund stock picks. Hedge funds’ top 20 stock picks have been outperforming the market by a huge margin since the beginning of 2019. These 20 stocks outperformed the market in 2020 as well. Amgen performed even better than them.

The third stock in our list is McKesson Corp (NYSE:MCK), which is among Michael Castor’s top 5 holdings right now. McKesson Corp shares are flat year-to-date. McKesson wasn’t among Michael Castor’s top 5 holdings at the end of December, so he must have bought more shares as the stock’s price declined as much as 20% at one point in March.

The fourth stock we are going to talk about is HCA Holdings Inc (NYSE:HCA) which was among Michael Castor’s top 5 holdings at the end of December. HCA shares declined because it was required to stop elective surgeries which are very profitable for hospitals and surgery centers. HCA may incur near term losses because of these restrictions but the hospital operator has a manageable debt burden. Here is what Castor said about HCA in Sio Capital’s latest investor letter:

“HCA is the best run hospital chain we know. Hospitals are essential to combat disasters such as coronavirus. In addition, they are economic pillars, often being the largest employer in a community. We think governments will intervene to keep hospitals solvent if necessary. Given its advantaged starting point in terms of modest leverage and high-quality operations, we think HCA will navigate the current challenges comfortably. We calculate fair-value for this stock by anticipating break-even operations this year followed by a return to more normal operations in future years.”

Finally we are going to talk about Medtronic plc (NYSE:MDT) which was among Castor’s top 5 holdings at the end of December. Michael Castor didn’t provide an update regarding Medtronic in his letter. However, we know that it isn’t among his top 5 picks anymore. Medtronic shares declined about 20% year-to-date.

I have to disclose that none of the stocks mentioned in this article are in my personal portfolio nor do I recommended positions in these stocks in our premium newsletters. The stocks discusses in this article are large-cap stocks. We prefer recommending Michael Castor’s smaller-cap stock picks that have huge upside potential in our newsletters.

Disclosure: None. This article is originally published at Insider Monkey.

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