Did Hedge Funds Catch A Break With DaVita Inc (DVA)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 867 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of September 30th, when the S&P 500 Index was trading around the 4300 level. Since then investors decided to bet on the economic recovery and a stock market rebound even though we experienced a temporary correction in January. In this article you are going to find out whether hedge funds thought DaVita Inc (NYSE:DVA) was a good investment heading into the fourth quarter and how the stock traded in comparison to the top hedge fund picks.

Hedge fund interest in DaVita Inc (NYSE:DVA) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that DVA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Annaly Capital Management, Inc. (NYSE:NLY), Jack Henry & Associates, Inc. (NASDAQ:JKHY), and Ares Management Corp (NYSE:ARES) to gather more data points.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s analyze the recent hedge fund action encompassing DaVita Inc (NYSE:DVA).

Do Hedge Funds Think DVA Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DVA over the last 25 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Among these funds, Berkshire Hathaway held the most valuable stake in DaVita Inc (NYSE:DVA), which was worth $4196.5 million at the end of the third quarter. On the second spot was Gates Capital Management which amassed $174.1 million worth of shares. DPM Capital, Glenview Capital, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position DPM Capital allocated the biggest weight to DaVita Inc (NYSE:DVA), around 97.3% of its 13F portfolio. Gates Capital Management is also relatively very bullish on the stock, designating 4.79 percent of its 13F equity portfolio to DVA.

Due to the fact that DaVita Inc (NYSE:DVA) has experienced declining sentiment from the smart money, it’s safe to say that there was a specific group of hedgies who sold off their positions entirely heading into Q4. It’s worth mentioning that Rick Slocum’s Harvard Management Co said goodbye to the biggest position of all the hedgies followed by Insider Monkey, valued at an estimated $49.2 million in stock, and Alec Litowitz and Ross Laser’s Magnetar Capital was right behind this move, as the fund sold off about $18.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to DaVita Inc (NYSE:DVA). These stocks are Annaly Capital Management, Inc. (NYSE:NLY), Jack Henry & Associates, Inc. (NASDAQ:JKHY), Ares Management Corp (NYSE:ARES), Pentair plc (NYSE:PNR), NovoCure Limited (NASDAQ:NVCR), Freshworks Inc. (NASDAQ:FRSH), and CF Industries Holdings, Inc. (NYSE:CF). This group of stocks’ market caps are similar to DVA’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $520 million. That figure was $4811 million in DVA’s case. CF Industries Holdings, Inc. (NYSE:CF) is the most popular stock in this table. On the other hand Annaly Capital Management, Inc. (NYSE:NLY) is the least popular one with only 15 bullish hedge fund positions. DaVita Inc (NYSE:DVA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DVA is 67.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, DVA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DVA were disappointed as the stock returned -6.8% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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