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Tenet Healthcare Corp (THC), Health Management Associates Inc (HMA): Finding Alpha Amongst Obamacare

How to invest for Obamacare was one of the topics this year at CNBC’s Delivering Alpha conference. A number of top hedge fund managers chimed in to provide investors with their alpha-driven stock picks. Most notably, Larry Robbins, founder of Glenview Capital, touted his best ways to play the industry. He’s making big bets on hospitals.
Tenet Healthcare Corp (NYSE:THC)

Robbins notes that these companies operate in a very stable and defensive growth industry. He also believes that for-profit companies will be a major force in keeping healthcare costs lower than the most dire predictions.
Tenet Healthcare Corp (NYSE:THC) and Health Management Associates Inc (NYSE:HMA) are two of Glenview’s top hospital stocks per the fund’s 13F filing with the SEC. The two hospital operators, Tenet Healthcare Corp (NYSE:THC) and Health Management, make up the fund’s second- and third-largest holdings, respectively.
Tenet Healthcare Corp (NYSE:THC)’s revenue is expected to be up 6.8% in 2013, and 6% in 2014. Other big news includes the fact that Tenet is looking to expand its network with the Vanguard Health Systems, Inc. (NYSE:VHS) acquisition. The Vanguard Health Systems, Inc. (NYSE:VHS) acquisition will boost the company’s position in South Texas, increasing Tenet Healthcare Corp (NYSE:THC)’s hospital facilities by 60% and outpatient facilities by 25%.

As mentioned before, hospitals will be a big winner of the healthcare reform act, but Tenet should be one of the biggest winners.
Tenet Healthcare Corp (NYSE:THC) has the majority of its hospitals in the Texas, Florida and California areas, which also happen to have the highest percentages of un-and under-insured patients.
Robbins’ other favorite hospital operator, Health Management Associates Inc (NYSE:HMA), continues to expand its service lines by adding specialists in areas such as neurology and cardiology. Health Management Associates Inc (NYSE:HMA) appears to be a solid buyout candidate. Glenview owns around 15% of the company and has been pushing it to remove its poison pill (15% threshold) for just this reason.

One of Health Management Associates Inc (NYSE:HMA)‘s biggest opportunities lies in outpatient care. The company generates around 50% of revenue from outpatient services. A healthcare survey shows that in April, only one-third of hospitals thought inpatient admissions would rise in 2013, compared to two-thirds projecting a rise in outpatient admissions.

Worth noting is that both hospital operators,
Tenet Healthcare Corp (NYSE:THC) and Health Management Associates Inc (NYSE:HMA), trade with rather high betas (high volatility) at 2.2 and 2.6, respectively. Tenet also trades at over 60 times earnings, while Healthcare Management is at 25 times.