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Were Hedge Funds Right About HCA Healthcare Inc (HCA)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about HCA Healthcare Inc (NYSE:HCA).

HCA Healthcare Inc (NYSE:HCA) was in 63 hedge funds’ portfolios at the end of the fourth quarter of 2019. HCA investors should be aware of an increase in hedge fund sentiment lately. There were 60 hedge funds in our database with HCA holdings at the end of the previous quarter. Our calculations also showed that HCA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

GLENVIEW CAPITAL

Larry Robbins of Glenview Capital

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. Blockchain technology is about to go mainstream and reach heavy adoption, so we check out this tech investor’s blockchain stock pick. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a peek at the latest hedge fund action encompassing HCA Healthcare Inc (NYSE:HCA).

What does smart money think about HCA Healthcare Inc (NYSE:HCA)?

Heading into the first quarter of 2020, a total of 63 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HCA over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Glenview Capital held the most valuable stake in HCA Healthcare Inc (NYSE:HCA), which was worth $881.7 million at the end of the third quarter. On the second spot was Lyrical Asset Management which amassed $454.6 million worth of shares. Citadel Investment Group, Arrowstreet Capital, and AQR Capital Management 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 Cryder Capital allocated the biggest weight to HCA Healthcare Inc (NYSE:HCA), around 15.03% of its 13F portfolio. Tavio Capital is also relatively very bullish on the stock, setting aside 12.3 percent of its 13F equity portfolio to HCA.

As one would reasonably expect, specific money managers have been driving this bullishness. Woodline Partners, managed by Michael Rockefeller and Karl Kroeker, established the largest position in HCA Healthcare Inc (NYSE:HCA). Woodline Partners had $47.5 million invested in the company at the end of the quarter. Samuel Isaly’s OrbiMed Advisors also made a $28.1 million investment in the stock during the quarter. The following funds were also among the new HCA investors: Kevin Molloy’s Iron Triangle Partners, John Brennan’s Sirios Capital Management, and David Costen Haley’s HBK Investments.

Let’s now take a look at hedge fund activity in other stocks similar to HCA Healthcare Inc (NYSE:HCA). These stocks are TC Energy Corporation (NYSE:TRP), Equinix Inc (NASDAQ:EQIX), Honda Motor Co Ltd (NYSE:HMC), and Prudential Public Limited Company (NYSE:PUK). 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
TRP 22 210177 2
EQIX 43 1639342 3
HMC 9 148249 -2
PUK 6 47203 -6
Average 20 511243 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $511 million. That figure was $3586 million in HCA’s case. Equinix Inc (NASDAQ:EQIX) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks HCA Healthcare Inc (NYSE:HCA) is more popular among hedge funds. 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 lost 1.0% in 2020 through April 20th and still beat the market by 11 percentage points. Unfortunately HCA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HCA were disappointed as the stock returned -25% during the three months of 2020 (through April 20th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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