Was The Smart Money Right About HCA Healthcare Inc (HCA)?
Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards HCA Healthcare Inc (NYSE:HCA).
Is HCA Healthcare Inc (NYSE:HCA) a first-rate stock to buy now? The best stock pickers were betting on the stock. The number of bullish hedge fund positions moved up by 2 lately. HCA Healthcare Inc (NYSE:HCA) was in 73 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 87. Our calculations also showed that HCA isn't among the 30 most popular stocks among hedge funds (click for Q4 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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 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.
Glenn Greenberg of Brave Warrior Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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 website. With all of this in mind let's check out the fresh hedge fund action encompassing HCA Healthcare Inc (NYSE:HCA).
Do Hedge Funds Think HCA Is A Good Stock To Buy Now?
Heading into the first quarter of 2021, a total of 73 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HCA over the last 22 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Among these funds, Lyrical Asset Management held the most valuable stake in HCA Healthcare Inc (NYSE:HCA), which was worth $346.1 million at the end of the fourth quarter. On the second spot was Viking Global which amassed $287.5 million worth of shares. Arrowstreet Capital, Brave Warrior Capital, and Glenview 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 19.28% of its 13F portfolio. Cryder Capital is also relatively very bullish on the stock, setting aside 12.81 percent of its 13F equity portfolio to HCA.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls' herd. Viking Global, managed by Andreas Halvorsen, assembled the largest position in HCA Healthcare Inc (NYSE:HCA). Viking Global had $287.5 million invested in the company at the end of the quarter. Kevin Molloy's Iron Triangle Partners also made a $46 million investment in the stock during the quarter. The other funds with brand new HCA positions are Anand Parekh's Alyeska Investment Group, Michael Rockefeller and Karl Kroeker's Woodline Partners, and Nicholas Bagnall's Te Ahumairangi Investment Management.
Let's check out hedge fund activity in other stocks similar to HCA Healthcare Inc (NYSE:HCA). We will take a look at Dell Technologies Inc. (NYSE:DELL), Analog Devices, Inc. (NASDAQ:ADI), Equinor ASA (NYSE:EQNR), Moody's Corporation (NYSE:MCO), Twilio Inc. (NYSE:TWLO), Humana Inc (NYSE:HUM), and Illumina, Inc. (NASDAQ:ILMN). All of these stocks' market caps match HCA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DELL,50,3909030,7 ADI,58,5319785,6 EQNR,18,238582,-2 MCO,59,11352402,-1 TWLO,94,5011455,23 HUM,59,3966420,-2 ILMN,45,1747647,1 Average,54.7,4506474,4.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 54.7 hedge funds with bullish positions and the average amount invested in these stocks was $4506 million. That figure was $3565 million in HCA's case. Twilio Inc. (NYSE:TWLO) is the most popular stock in this table. On the other hand Equinor ASA (NYSE:EQNR) is the least popular one with only 18 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 68.4. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on HCA as the stock returned 18.8% since the end of Q4 (through 4/19) 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.
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