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The medical industry includes medical and nursing Services, medical and dental instruments, medical electronics, and medical specialties. Investing in medical companies can be very lucrative if investors can pick the right stocks. The long-term trend in the industry is still positive despite the recent regulations. We believe one of the best ways of picking good stocks in this sector is focusing on top hedge funds’ positions. When you see several hedge fund managers all buying the same stocks at the same time, it is generally a good investment. Here we compile a list of top 15 medical stocks that hedge funds were buying in the third quarter.

Company

Ticker

No. of HFs

Return in 2011

MedcoHealth Solutions

MHS

54

-9%

Express Scripts, Inc.

ESRX

49

-17%

CVS Corp

CVS

41

18%

Walgreen Co.

WAG

36

-14%

Covidien plc.

COV

34

0

Baxter International Inc.

BAX

33

0

CareFusion Corp

CFN

31

-2%

Hologic, Inc.

HOLX

29

-8%

3M Company

MMM

28

-3%

Laboratory Corp of America

LH

25

-3%

Omnicare, Inc.

OCR

24

37%

Boston Scientific Corp

BSX

23

-31%

Stryker Corporation

SYK

23

-7%

Becton, Dickinson and Co.

BDX

20

-10%

Rite Aid Corp

RAD

19

42%

MedcoHealth Solutions Inc. (NYSE:MHS) was the most popular medical stock among hedge funds. In spite of MHS’s mixed path and its 9% loss in 2011, fifty-four hedge funds had positions in the stock at the end of the third quarter. Among the hedge funds we track, David E. Shaw held the most shares of MHS. His D. E. Shaw disclosed 5.44 million shares as of the end of September, after a 785% increase in its position during Q3. Meanwhile, Steven Cohen’s SAC Capital Advisors boosted its position significantly and reported 1.46 million shares in the third quarter. Several hedge fund managers initiated new positions in MHS, including Jim Simons, John Paulson, Robert Emil Zoellner, Kenneth Mario Garschina, Eric Mindich, and Matthew Halbower (see Jim Simons’ favorite stocks).

Up second comes Express Scripts, Inc. (NASDAQ:ESRX), which also failed to deliver a fair return. The stock lost 17% last year, but the stock did show some positive trend after it hit its 2-year low in early October. Forty-nine hedge funds held ESRX in the third quarter. Stephen Mandel’s Lone Pine Capital had more shares in the stock than any other hedge fund, with more than 13 million shares, up 67% from the second quarter. Jim Simons, Jeffrey Altman, Eric Bannasch and Ken Griffin were also ESRX’s fans.

CVS Corp (NYSE:CVS) and Walgreen Co. (NYSE:WAG) are also in this list. These two rivals showed different returns in 2011 but both had attracted many hedge funds. Forty-one hedge funds were in CVS while 36 hedge funds were in WAG. Several famous hedge fund managers held both stocks during the third quarter, including George Soros, Jim Simons, Ken Griffin, Cliff Asness, Steven Cohen, and Israel Englander. Legendary investor Warren Buffett initiated a new position in CVS in Q3, giving him 5.66 million shares. John Paulson also picked CVS and bought exactly 2.5 million shares during the third quarter (see John Paulson’s top stock picks).

Other popular medical stocks that loved by hedge funds include Covidien plc. (NYSE:COV), Baxter International Inc. (NYSE:BAX), CareFusion Corp (NYSE:CFN), Hologic Inc. (NASDAQ:HOLX), 3M Co. (NYSE:MMM), Laboratory Corp of America Holdings (NYSE:LH), Omnicare Inc. (NYSE:OCR), Boston Scientific Corp (NYSE:BSX), Stryker Corp (NYSE:SYK), Becton, Dickinson & Co. (NYSE:BDX), and Rite Aid Corp (NYSE:RAD). On average, these 15 medical stocks broke even in 2011. Since most medical stocks showed strong recoveries after the third quarter, we encourage investors to do some in-depth research on the stocks listed above for their portfolios.

Source: 15 Medical Stocks Hedge Funds Are Bullish About