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Should You Buy HCA Healthcare Inc (HCA)?

Abigail Fisher

Is HCA Healthcare Inc (NYSE:HCA) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

HCA Healthcare Inc (NYSE:HCA) shareholders have witnessed an increase in activity from the world's largest hedge funds in recent months. HCA was in 55 hedge funds' portfolios at the end of September. There were 51 hedge funds in our database with HCA positions 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 Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_26388" align="aligncenter" width="468"] Lee Ainslie of Maverick Capital[/caption]

Lee Ainslie MAVERICK CAPITAL

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's view the key hedge fund action surrounding HCA Healthcare Inc (NYSE:HCA).

Hedge fund activity in HCA Healthcare Inc (NYSE:HCA)

At Q3's end, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HCA over the last 17 quarters. With the smart money's capital changing hands, there exists a few key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

HCA_nov2019

The largest stake in HCA Healthcare Inc (NYSE:HCA) was held by Glenview Capital, which reported holding $643.1 million worth of stock at the end of September. It was followed by Lyrical Asset Management with a $370.3 million position. Other investors bullish on the company included Arrowstreet Capital, AQR Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Cryder Capital allocated the biggest weight to HCA Healthcare Inc (NYSE:HCA), around 13.86% of its portfolio. Tavio Capital is also relatively very bullish on the stock, dishing out 9.12 percent of its 13F equity portfolio to HCA.

As industrywide interest jumped, key money managers have been driving this bullishness. Redmile Group, managed by Jeremy Green, established the biggest position in HCA Healthcare Inc (NYSE:HCA). Redmile Group had $28.4 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley's Polar Capital also initiated a $13.4 million position during the quarter. The other funds with brand new HCA positions are Sander Gerber's Hudson Bay Capital Management, Matthew Hulsizer's PEAK6 Capital Management, and Lee Ainslie's Maverick Capital.

Let's also examine hedge fund activity in other stocks similar to HCA Healthcare Inc (NYSE:HCA). We will take a look at Marriott International Inc (NASDAQ:MAR), BB&T Corporation (NYSE:BBT), Dollar General Corp. (NYSE:DG), and SYSCO Corporation (NYSE:SYY). This group of 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 MAR,37,2446310,10 BBT,26,370776,3 DG,45,2157250,8 SYY,22,3016032,-9 Average,32.5,1997592,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $1998 million. That figure was $2621 million in HCA's case. Dollar General Corp. (NYSE:DG) is the most popular stock in this table. On the other hand SYSCO Corporation (NYSE:SYY) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks HCA Healthcare Inc (NYSE:HCA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on HCA as the stock returned 15.5% during the first two months of Q4 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.

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

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