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.
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.
