By: Adam Barnett
Traxis Partners is a boutique hedge fund founded by former Morgan Stanley global strategist Barton Biggs, who passed away in July 2012. It is currently managed by Adam Jaffe. During the first quarter of 2013, the fund has made a number of adjustments to its equity portfolio, which can be estimated via the latest 13F filing with the SEC. According to this latest 13F, the fund's portfolio continues to have significant exposure to healthcare and its related sectors. We will now examine the performance of the top five largest holdings of the fund. The original 13F is here.
Why do we pay attention?
It is important to track hedge fund sentiment, because on the whole, the best picks have been shown to outperform the market by as much as 18 percentage points a year. Best of all, retail investors can capitalize on this phenomenon, but they have to know where to look first (discover the secrets of this strategy here).
Let's get started
The largest position in Traxis Partners' latest 13F is HCA Holdings (NYSE:HCA), an owner and operator of hospitals, surgery centers, diagnostic and imaging centers, radiation and oncology therapy centers, and similar facilities. It should be noted that Traxis has reduced its exposure to this stock by 12% between this quarter and the prior one. In spite of this, the value of HCA Holdings has significantly increased since the final 2012 quarter, from approximately $4.3 million to $5.2 million, a rise of over 20%.
HCA is in substantial uptrend, and at the time of writing is trading at approximately $40.90 from a low of $23.91 in mid-2012, and is near its 52-week high of $41.82. The stock has a relatively low P/E ratio of 13.34, with the majority of analysts still recommending a buy, giving the company an average price target of $45.87.
The second largest holding in the Traxis Partners 13F is the NASDAQ-listed Express Scripts Holding Company (NASDAQ:ESRX). Express Scripts also operates in the healthcare sector, providing pharmacy benefit management services and account administration services for health clinics throughout North America. The fund has increased its stake by over 13% quarter-by-quarter, and the value of its holding in this stock was reported as approximately $4.8 million in the 13F.
As of writing, Express Scripts is trading at about $61.50, a substantial rise since April 2013 when it was trading as low as $55 a share. Importantly, 2013 first-quarter earnings rose to $373 million from $267.8 million in the prior quarter. However, EPS actually fell from 55 cents a share to 45 cents a share from the corresponding quarter last year, due to $343 million more shares being outstanding. Revenue also increased from $12.13 billion to $26.06 billion in the prior year.
The best of the rest
Traxis Partners has reduced their exposure by over 10% to its next largest holding, Health Management Associates (NYSE:HMA), another healthcare provider. As of the 13F, the value of the fund's stake, consisting of Class A stock, was reported at approximately 4.5 million. In spite of this, the value of the firm's holding has increased in 2013. The stock has risen to approximately $11.00 a share as of the time of this writing, from a $9 low in January.
Health Management Associates' current P/E ratio is 19.21, with a forward P/E at a more value-friendly level of 12.67. Subsequently, there was a significant drop in earnings in the first quarter 2013, with the company reporting a profit of $23.1 million, or nine cents a share, compared with a year-ago profit of $37.7 million, or 15 cents a share, a drop of approximately 39%. Analysts are also quite reserved about the stock, with the majority recommending it as a hold or sell. We'll continue to watch this holding closely.
The next most significant position is Universal Health Services (NYSE:UHS), yet another healthcare company operating hospitals and similar undertakings. Traxis has not made any significant adjustments to its holdings of this stock from the prior quarter. As of writing, the stock is trading near $67.50 a share, very close to its 52-week high. 2013 Q1 earnings significantly beat expectations, with adjusted EPS increasing by 7.96% to $1.22 versus $1.13 in the prior-year quarter. Revenue also increased 13.86% to $2.08 billion from the prior-year quarter. The majority of analysts are bullish on the stock, with an average target price of $71.38.
Finally, the 13F lists health insurer Molina Healthcare (NYSE:MOH) as the next most significant holding of Traxis Partners, with the fund's holdings remaining fairly constant over the 2013 Q1 and 2012 Q4 quarters. The value of the stake has risen significantly due to the positive price performance of Molina, with the total value of the stake being nearly $3.8 million as of the 13F posting, compared with $3.3 million prior. As with other stocks held by Traxis, the company is very near its 52-week high of $36.46. Cost cutting has provided impressive earnings performance, with first quarter 2013 net EPS being 64 cents, surpassing analyst estimates of 26 cents. This was also an increase from the year-ago quarter number of 39 cents.
Traxis Partners has clearly benefited from its focus on the healthcare sector, with many of its core holdings trading near their 52-week highs, although it should be noted that some analysts are reserved on the future prospects of some of these stocks. Universal Health Services seems to be an exception to this, having the superb trio of strong price action, good fundamentals and positive predictions from the analysts.
In short, it is clear that this fund is a savvy player in the healthcare sector, and therefore all of its holdings are worth adding to your watchlist, particularly if you are bullish on this high-performing sector.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: This article is written by Insider Monkey's writer, Adam Barnett, and edited by Jake Mann. They don't have any business relationships with any of the companies mentioned in this article and they didn't receive compensation (other than from Insider Monkey and Seeking Alpha) to write this article.