Is HCA Healthcare (HCA) A Good Stock To Buy Now?

At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not HCA Healthcare Inc (NYSE:HCA) makes for a good investment right now.

Is HCA Healthcare Inc (NYSE:HCA) a good stock to buy now? HCA shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 71 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that HCA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). 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 Roper Technologies Inc. (NYSE:ROP), Canadian Pacific Railway Limited (NYSE:CP), and Honda Motor Co Ltd (NYSE:HMC) to gather more data points.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Glenn Greenberg

Glenn Greenberg of Brave Warrior Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we’re going to go over the fresh hedge fund action regarding HCA Healthcare Inc (NYSE:HCA).

Hedge fund activity in HCA Healthcare Inc (NYSE:HCA)

At Q3’s end, a total of 71 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HCA over the last 21 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

The largest stake in HCA Healthcare Inc (NYSE:HCA) was held by Lyrical Asset Management, which reported holding $260.5 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $215.5 million position. Other investors bullish on the company included Glenview Capital, Brave Warrior Capital, and Abrams Bison Investments. In terms of the portfolio weights assigned to each position Abrams Bison Investments allocated the biggest weight to HCA Healthcare Inc (NYSE:HCA), around 19.37% of its 13F portfolio. Cryder Capital is also relatively very bullish on the stock, earmarking 11.04 percent of its 13F equity portfolio to HCA.

Since HCA Healthcare Inc (NYSE:HCA) has faced a decline in interest from the smart money, logic holds that there lies a certain “tier” of money managers that elected to cut their entire stakes heading into Q4. Interestingly, Seth Klarman’s Baupost Group said goodbye to the largest stake of the “upper crust” of funds watched by Insider Monkey, comprising close to $97.1 million in stock, Renaissance Technologies was right behind this move, as the fund dumped about $94.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to HCA Healthcare Inc (NYSE:HCA). These stocks are Roper Technologies Inc. (NYSE:ROP), Canadian Pacific Railway Limited (NYSE:CP), Honda Motor Co Ltd (NYSE:HMC), Digital Realty Trust, Inc. (NYSE:DLR), Eaton Corporation plc (NYSE:ETN), DuPont de Nemours Inc (NYSE:DD), and Baxter International Inc. (NYSE:BAX). This group of stocks’ market values are closest to HCA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ROP 50 1372065 5
CP 32 1467228 -4
HMC 11 314104 1
DLR 25 252076 -1
ETN 35 586037 1
DD 61 3679088 -3
BAX 51 2025150 -8
Average 37.9 1385107 -1.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.9 hedge funds with bullish positions and the average amount invested in these stocks was $1385 million. That figure was $2443 million in HCA’s case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand Honda Motor Co Ltd (NYSE:HMC) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks HCA Healthcare Inc (NYSE:HCA) is more popular among hedge funds. Our overall hedge fund sentiment score for HCA is 79.5. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 30.7% in 2020 through November 27th but still managed to beat the market by 16.1 percentage points. Hedge funds were also right about betting on HCA as the stock returned 22.8% since the end of September (through 11/27) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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