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These Hedge Funds Cashed Out Of HCA Healthcare Inc (HCA) Too Soon

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards HCA Healthcare Inc (NYSE:HCA) and determine whether hedge funds skillfully traded this stock.

HCA Healthcare Inc (NYSE:HCA) has experienced a decrease in support from the world’s most elite money managers recently. HCA Healthcare Inc (NYSE:HCA) was in 71 hedge funds’ portfolios at the end of June. The all time high for this statistics is 87. There were 87 hedge funds in our database with HCA holdings at the end of March. Our calculations also showed that HCA isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

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 56 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 34% through August 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 scour multiple sources to uncover the next great investment idea. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s take a look at the recent hedge fund action surrounding HCA Healthcare Inc (NYSE:HCA).

What have hedge funds been doing with HCA Healthcare Inc (NYSE:HCA)?

At second quarter’s end, a total of 71 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the previous quarter. On the other hand, there were a total of 51 hedge funds with a bullish position in HCA a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

The largest stake in HCA Healthcare Inc (NYSE:HCA) was held by Glenview Capital, which reported holding $209.4 million worth of stock at the end of September. It was followed by Lyrical Asset Management with a $207.9 million position. Other investors bullish on the company included Brave Warrior Capital, Arrowstreet Capital, and Appaloosa Management LP. In terms of the portfolio weights assigned to each position Abrams Bison Investments allocated the biggest weight to HCA Healthcare Inc (NYSE:HCA), around 14.26% of its 13F portfolio. Dendur Capital is also relatively very bullish on the stock, earmarking 11.02 percent of its 13F equity portfolio to HCA.

Since HCA Healthcare Inc (NYSE:HCA) has faced bearish sentiment from the smart money, it’s safe to say that there was a specific group of funds that slashed their full holdings heading into Q3. At the top of the heap, Stephen DuBois’s Camber Capital Management said goodbye to the largest position of the 750 funds watched by Insider Monkey, comprising an estimated $76.4 million in stock, and Samuel Isaly’s OrbiMed Advisors was right behind this move, as the fund said goodbye to about $63.8 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 16 funds heading into Q3.

Let’s check out hedge fund activity in other stocks similar to HCA Healthcare Inc (NYSE:HCA). These stocks are NXP Semiconductors NV (NASDAQ:NXPI), DocuSign, Inc. (NASDAQ:DOCU), Splunk Inc (NASDAQ:SPLK), Orange SA (NYSE:ORAN), Phillips 66 (NYSE:PSX), Mizuho Financial Group Inc. (NYSE:MFG), and O’Reilly Automotive Inc (NASDAQ:ORLY). 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
NXPI 67 2214977 15
DOCU 57 2585727 10
SPLK 49 874330 12
ORAN 3 6480 -2
PSX 42 362906 -1
MFG 8 17393 2
ORLY 61 2930519 1
Average 41 1284619 5.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $1285 million. That figure was $2240 million in HCA’s case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand Orange SA (NYSE:ORAN) is the least popular one with only 3 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 63.5. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 28.2% in 2020 through August 24th but still managed to beat the market by 20.6 percentage points. Hedge funds were also right about betting on HCA as the stock returned 38.5% since the end of June 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.