Top Healthcare Sector Picks By Legendary Fund Managers

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 |  Includes: ANTM, BSX, CAH, DVA, DXCM, HNSN, MCK, MDT, QGEN, THC, UNH, VVUS
by: GuruFundPicks

In this article, we identify the healthcare sector companies that are being accumulated and those being distributed by legendary or guru fund managers such as Warren Buffett, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, based on our extensive database of the buying and selling activities of over 60+ such managers, and correlate it to their valuation relative to peers in the group. However, since the investing activities of these legendary fund managers in small-cap biotech and mid- and large-cap biotech companies were covered separately by us in other articles, we only detail in this article the non-biotech healthcare sector companies that these legendary fund managers are most bullish or bearish about.

The hedge fund and mutual fund managers included in this select group include only high profile names who by virtue of their long-term market-beating returns have earned their standing in the investment community and are worthy of our attention. They include well-known names such as those mentioned above, as well as perhaps relatively lesser-known names that also have a stellar long-term history of beating the markets, such as Seth Klarman, John Griffin, Prem Watsa, Robert Karr and Lee Ainslie.

Overall, gurus are slightly bearish on the healthcare sector. During the June quarter, guru fund managers together cut a net $673 million from their prior $37.09 billion position in the group, selling $6.16 billion and buying $5.48 billion worth of stocks in the group. Furthermore, overall they are under-weight in the group, and taken together, the 60+ guru funds have invested 8.4% of their assets in the sector, significantly less than the 12.5% weighting of the group in the overall market.

The following are four healthcare stocks, ex-biotech, that these guru funds are most bullish about (see Table):

Medtronic Inc. (NYSE:MDT): MDT develops implantable cardiac rhythm devices, spinal implants and other device-based medical therapies. Guru funds added a net $256 million to their $724 million prior quarter position, and taken together guru funds hold 2.6% of the outstanding shares, significantly more than their 1.8% weighting in the healthcare group. The top buyer was Fisher Asset Management ($268 million) that initiated a new position in the company in the June quarter, and the top holders are Oakmark Funds/ Harris Associates ($302 million) and Fisher. Overall, 1,057 institutions hold 76.1% of MDT shares, with Wellington Management ($1.60 billion), Vanguard Group ($1.56 billion) and PRIMECAP Management ($1.49 billion) being the top holders with 4.5%, 4.4% and 4.2% of the outstanding shares respectively.

Tenet Healthcare Corp. (NYSE:THC): THC is an operator of 49 general hospitals and critical access hospitals in urban and rural communities in eleven states. Guru funds added a net $20 million to their $90 million prior quarter position, and taken together guru funds hold 4.8% of the outstanding shares, significantly more than their 1.8% weighting in the healthcare group. The top buyer was Oakmark Funds/ Harris Associates ($79 million), who was also the top holder with a $100 million position at the end of the quarter. Overall, 343 institutions hold THC shares, with Fidelity Investments ($196 million), Franklin Resources ($153 million) and Vanguard Group ($144 million) being the top holders with 9.1%, 7.1% and 6.7% of the outstanding shares respectively.

Qiagen NV (NASDAQ:QGEN): QGEN develops technologies for the isolation, purification and analysis of DNA, RNA and proteins in biological samples. Guru funds added $6 million to their $2 million prior quarter position. However, taken together guru funds hold 0.3% of the outstanding shares, significantly less than their 1.8% weighting in the healthcare group. The only holder was SAC Capital Advisors ($8 million) that also added the $6 million during the quarter. Overall, 179 institutions hold 52.2% of QGEN shares, with Deutsche Bank AG ($200 million) and Fidelity Investments ($164 million) being the top holders with 6.6% and 5.4% of the outstanding shares respectively.

Boston Scientific Corp. (NYSE:BSX): BSX is a developer of medical devices used in cardiology, endoscopy, oncology, neuromodulation and other interventional procedures. Guru funds added a net $3 million to their $383 million prior quarter position, and taken together guru funds hold 4.3% of the outstanding shares, significantly more than their 1.8% weighting in the healthcare group. The top buyer was Oakmark Funds/ Harris Associates ($44 million), and the top holders were Oakmark Funds/ Harris Associates ($370 million) and GAMCO Investors ($11 million). Overall, 483 institutions hold 82.7% of BSX shares, with Capital Research Global Investors ($747 million) and Dodge & Cox ($682 million) being the top holders with 8.6% and 7.8% of the outstanding shares respectively.

The following are four healthcare stocks, ex-biotech, that these guru funds are most bearish about (see Table):

McKesson Corp. (NYSE:MCK): MCK is a provider of ethical drugs, health and beauty care products and medical supplies and equipment to pharmacies and hospitals. Guru funds cut a net $397 million from their $917 million prior quarter position, and taken together, guru funds hold 2.6% of the outstanding shares-- significantly more than their 1.8% weighting in the healthcare group. The top sellers were Maverick Capital ($273 million), Viking Global Investors ($83 million) and Glenview Capital Management ($40 million). Overall, 656 institutions hold 85.6% of MCK shares, with T Rowe Price ($1.67 billion), Fidelity Investments ($1.66 billion) and Wellington Management ($1.30 billion) being the top holders with 8.3%, 8.3% and 6.5% of the outstanding shares respectively.

Cardinal Health, Inc. (NYSE:CAH): CAH is a distributor of pharmaceutical and medical products; operator of medical services facilities; and developer of medical and surgical products including disposable kits, drapes, gowns and other products. Guru funds cut a net $31 million from their $373 million prior quarter position, and taken together guru funds hold 2.3% of the outstanding shares, significantly more than their 1.8% weighting in the healthcare group. The top seller was Greenlight Capital ($191 million). Overall, 545 institutions hold 88.2% of CAH shares, with Wellington Management ($1.60 billion) and Capital World Investors ($1.21 billion) being the top holders with 10.6% and 8.0% of the outstanding shares respectively.

Davita Inc. (NYSE:DVA): DVA is a provider of dialysis services to patients with end-stage renal disease via 1,612 outpatient dialysis in 42 states. Guru funds cut a net $342 million from their $592 million prior quarter position, and taken together guru funds hold 3.7% of the outstanding shares, significantly more than their 1.8% weighting in the healthcare group. The top sellers were Lone Pine Capital ($141 million), Maverick Capital ($123 million) and Glenview Capital Management ($73 million). Overall, 374 institutions hold 94.4% of DVA shares, with Timesquare Capital Management ($404 million) and Vanguard Group ($351 million) being the top holders with 6.2% and 5.4% of the outstanding shares respectively.

Wellpoint Inc. (WLP): WLP is a provider of managed healthcare services through PPO, HMO and POS, indemnity and other hybrid plans to 33.3 million members. Guru funds cut a net $246 million from their $923 million prior quarter position, and taken together guru funds hold 2.8% of the outstanding shares, significantly more than their 1.8% weighting in the healthcare group. The top sellers were Children’s Investment Fund Management ($179 million) and Glenview Capital Management ($68 million). Overall, 684 institutions hold 87.0% of WLP shares, with State Street Corp. ($997 million), AllianceBernstein ($945 million) and Vanguard Group ($945 million) being the top holders with 4.2%, 4.0% and 4.0% of the outstanding shares respectively.

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General Methodology and Background Information: The latest available institutional 13-F filings of over 60+ legendary or guru hedge fund and mutual fund managers were analyzed to determine their capital allocation from among 50+ different industry groupings, and to determine their favorite picks and pans in each group. Each guru has been carefully selected based on their long-term performance and standing in the investment community. Furthermore, the credentials of most of the 60-odd guru funds that justify their inclusion in this elite group were detailed in our previous articles.

These legendary or guru fund managers number less than one percent of all funds, and yet they control almost ten percent of the U.S. equity discretionary fund assets. The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors-- by virtue of their fund performance, low volatility and elite reputation in the investment community-- invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence, or even go as far as constructing a model diversified portfolio based on the guru funds best picks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.