In its most recent 13F filing, for the second quarter of 2015, Larry Robbins‘ Glenview Capital disclosed that about half of its equity portfolio was invested in the healthcare sector. Despite the fact that the sector has been performing very well compared to the broader market, the sell-off in July and August amid concerns regarding China, interest rates, and drug pricing, has put some downward pressure on Glenview’s portfolio, as Robbins noted in his latest letter to investors. The investor cited weaker earnings among hospital operators and market and “political and populist noise surrounding healthcare issues” among the reasons for the decline. According to our metric that takes into account the holdings of funds in companies with a market cap above $1.0 billion, Glenview’s 81 positions in such stocks as of June 30 lost around 14% during the third quarter.
In the letter, Robbins also said that Managed Care and Hospitals amassed the largest shares of Glenview’s healthcare positions and in this article we will take a look at some of the companies that the investor mentioned. We follow the activity of some of the best investors because we believe that we can benefit from their expertise and imitate some of their picks in order to beat the market. For example, the 15 most popular small-cap stocks among the funds from our database, have collectively returned 102% since August 2012, outperforming the S&P 500 ETF (SPY) by around 53 percentage points. We have been sharing these stocks in our newsletters since then (read more details here).
Among the managed care companies in which Glenview held stakes at the end of June, Robbins mentioned four, CIGNA Corporation (NYSE:CI), Anthem Inc (NYSE:ANTM), Aetna Inc (NYSE:AET), and Humana Inc (NYSE:HUM). Recently, Anthem announced the acquisition of Cigna Corporation, while Aetna Inc (NYSE:AET) is planning to buy Humana Inc (NYSE:HUM). The investor said even without the mergers, all four companies have a lot of value and he views “the mergers as adding a compelling asymmetric upside”. Robbins added that both Anthem Inc (NYSE:ANTM) and CIGNA Corporation (NYSE:CI) are currently cheap, as they are trading at around 11.xx and 12.xx 2017 standalone EPS, respectively. Even if the deal between both companies is not approved by anti-trust authorities, Robbins considers that they could provide 20%-to-35% annualized returns through the end of 2016. In Anthem Inc (NYSE:ANTM), Glenview inched down its stake by 5% during the second quarter to 4.62 million shares, while its stake in CIGNA Corporation (NYSE:CI) was increased by 58% to 2.82 million shares.
“Pro forma for the transaction, Anthem is trading at under 10x 2017 EPS, and should grow high-teens from 2017-2019 as the full accretion for the deal comes in. In this event we think Anthem’s stock could return almost 50% annualized return by year end 2016. Further, we think Cigna could achieve 50-70% annualized returns between now and deal closing,” Robbins concluded.
At the same time, Glenview increased its exposure to Aetna Inc (NYSE:AET) by 57% to 5.57 million shares and to Humana by 30% to 6.57 million shares. Moreover, Humana Inc (NYSE:HUM) represented Glenview’s largest holding in terms of value at the end of June, as the $1.26 billion position amassed nearly 5% of its total equity portfolio.
On the following page we are going to take a look at Robbins’ opinion on the hospital industry and some of the stocks on which the investor is bullish.