Larry Robbins’ Glenview returned 301% after fees and expenses between January 2001 and December 2010. Glenview Capital also returned 15.7% in 2010, performing better than average hedge funds and the S&P 500 index. Larry Robbins is extremely optimistic about the market over the next 3 years. He thinks the following stocks will increase by 50-100% during this time period.
McKesson (MCK): Robbins thinks McKesson will benefit from ObamaCare. Expanded Medicare Part D drug coverage will add 2-3% per year to McKesson’s volumes.
In the coming three years, the industry will benefit both from a second wave of generics, as shown in the following chart, as well as a volume uplift driven by federal healthcare policy, this time in 2014 driven by the universal healthcare coverage aspects of the recent healthcare reform legislation
The growth drivers are acyclical – as a domestic defensive, they will be less vulnerable to sudden changes in the global economy
Robbins says. Glenview has all three pharmaceutical distribution players in its portfolio. David Einhorn's Greenlight Capital also has $400+ Million position in CAH.
While most can agree that PBMs provide a valuable service that should command fair compensation, we believe the returns on capital, pricing and margins are higher because the exact mechanisms to generate such profit streams are a bit of a mystery to clients. While many investors predicted the demise of the PBM industry because of its lack of transparency, we felt that this mystery was actually a positive investment attribute that would continue to drive and sustain high levels of margin, growth and return on capital
Aetna (AET), WellPoint (WLP), Cigna (CI), and United Healthcare (UNH): Robbins thinks HMOs are oversold because of the misunderstood healthcare regulations, and they trade at 7-10 times their 2012 earnings per share. He expects earnings growth rate to be very low in 2011, but things will change in 2012 and earnings will grow by around 15%.
Finally, after years of fighting through both cyclical membership headwinds due to rising unemployment and investment income headwinds, the industry appears poised to accelerate membership growth commensurate with a rebuilding of overall employment levels and to benefit from interest rates returning to levels closer to historical averages.
Glenview’s favorite HMO pick is AET because of its low valuation and strong earnings growth. However, they have Wellpoint, Cigna and United Health in their portfolios as well and they may increase their holdings depending on asset sales or capital deployment in these companies.
Wellpoint is the most popular HMO among hedge funds. There were 91 hedge funds with WLP positions at the end of 2010, owning nine percent of the Wellpoint’s outstanding shares. The stock returned more than 20% since the beginning of the year versus the S&P 500 (SPY), which is pretty much flat with the recent declines. Appaloosa’s David Tepper bought Wellpoint during third quarter of 2010, right before the huge increase in the stock market and WLP.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.