Is HCA Healthcare Inc (HCA) Going to Burn These Hedge Funds?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about HCA Healthcare Inc (NYSE:HCA) in this article.

HCA Healthcare Inc (NYSE:HCA) shareholders have witnessed a decrease in support from the world’s most elite money managers lately. HCA Healthcare Inc (NYSE:HCA) was in 60 hedge funds’ portfolios at the end of June. The all time high for this statistic is 87. There were 62 hedge funds in our database with HCA positions at the end of the first quarter. Our calculations also showed that HCA isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Glenn Greenberg

Glenn Greenberg of Brave Warrior Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. 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 homepage. With all of this in mind let’s take a look at the recent hedge fund action regarding HCA Healthcare Inc (NYSE:HCA).

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

At second quarter’s end, a total of 60 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in HCA over the last 24 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

More specifically, Arrowstreet Capital was the largest shareholder of HCA Healthcare Inc (NYSE:HCA), with a stake worth $465.6 million reported as of the end of June. Trailing Arrowstreet Capital was Lyrical Asset Management, which amassed a stake valued at $367.5 million. Cryder Capital, Abrams Bison Investments, and Brave Warrior Capital 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 Abrams Bison Investments allocated the biggest weight to HCA Healthcare Inc (NYSE:HCA), around 18.6% of its 13F portfolio. Cryder Capital is also relatively very bullish on the stock, setting aside 12.05 percent of its 13F equity portfolio to HCA.

Seeing as HCA Healthcare Inc (NYSE:HCA) has witnessed bearish sentiment from hedge fund managers, logic holds that there was a specific group of hedge funds who sold off their positions entirely heading into Q3. Interestingly, Andreas Halvorsen’s Viking Global dropped the largest position of the 750 funds followed by Insider Monkey, totaling about $282.3 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also dumped its stock, about $50.1 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds heading into Q3.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as HCA Healthcare Inc (NYSE:HCA) but similarly valued. These stocks are ABB Ltd (NYSE:ABB), Twilio Inc. (NYSE:TWLO), Moody’s Corporation (NYSE:MCO), Banco Santander, S.A. (NYSE:SAN), VMware, Inc. (NYSE:VMW), Intercontinental Exchange Inc (NYSE:ICE), and Norfolk Southern Corp. (NYSE:NSC). This group of stocks’ market caps are closest to HCA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ABB 15 658036 4
TWLO 98 7891057 -1
MCO 44 16046255 -11
SAN 17 566333 2
VMW 28 819778 3
ICE 47 2946268 -11
NSC 58 1488960 12
Average 43.9 4345241 -0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.9 hedge funds with bullish positions and the average amount invested in these stocks was $4345 million. That figure was $2696 million in HCA’s case. Twilio Inc. (NYSE:TWLO) is the most popular stock in this table. On the other hand ABB Ltd (NYSE:ABB) is the least popular one with only 15 bullish hedge fund positions. HCA Healthcare Inc (NYSE:HCA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HCA is 50.8. 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 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 25.7% in 2021 through September 27th and still beat the market by 6.2 percentage points. Hedge funds were also right about betting on HCA as the stock returned 23.8% since the end of Q2 (through 9/27) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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