Joseph Healey and Arthur Cohen's Bullish Healthcare Stock Picks

by: Insider Monkey

Arthur Cohen is a cofounder of HealthCor Management, a $2.7 billion healthcare hedge fund. Cohen graduated from the University of Virginia in 1983 with a B.A. degree in Commerce and received his M.B.A. in Banking and Finance from Hofstra University in 1986.

He worked for Julian Robertson between 1995 and 2000. He was responsible for healthcare investments as a Managing Director at Tiger Management. He found HealthCor with Joseph P. Healey in September 2005. (See Joseph Healey's stock recommendations at the 2009 Ira Sohn Conference.) Cohen invests significant amounts in the healthcare industry by diversifying his portfolio in different stocks. Nearly two thirds of his investments are in the healthcare sector.

According to 13F filings, Cohen's Healthcor Management LP had a total of 278 securities in its 13F portfolio during the last five years. As of September 30th, 2010, he held at least 87 securities. His favorite long-term stocks for the last five years are Magellan Health Services Inc (NASDAQ:MGLN), with $140 million invested, and Nektar Therapeutıcs Shs (NASDAQ:NKTR). MGLN returned 22.2% and NKTR lost 45.2% over the last 5 years. Considering QQQQ’s 38.9% return, Cohen's long term 13F positions performed much worse than the market.

During the third quarter of 2010, Cohen bought 13 new stocks. Here are his five largest new stock picks:

1-) AmerisourceBergen Corp (NYSE:ABC): Arthur Cohen had $86 million in ABC shares at the end of September. These shares gained 15.9% since then, outperforming the SPY by a percentage point.

2-) Agilent Technologies (NYSE:A): Agilent gained 23.6% since September, beating the SPY by 8.7 percentage points.

3-) Cardinal Health (NYSE:CAH): Cardinal Health is Arthur Cohen’s best performing new stock pick, returning nearly 27%. Cohen has $50 million invested. CAH is also one of Roberto Mignone’s top 15 positions.

4-) McKesson Corp (NYSE:MCK): Arthur Cohen had $40 million in MCK stock at the end of September. The stock gained 24.8% since then, beating the SPY by 9.9 percentage points. Larry Robbins' Glenview Capital also has a large MCK investment.

5-) International Flavors & Fragrances (NYSE:IFF): IFF was another good pick by Cohen. IFF outperformed the SPY by 7.3 percentage points.

The value of the 13 new stocks in Cohen's portfolio was $330 million at the end of September. The value weighted average performance of his new stocks during the last 4 months is 32.6%+, outperforming the market by 17.7 %. These new stocks are still a small portion of Cohen’s 2.17 billion 13F portfolio.

Monkeying Cohen’s new stock positions seems very promising. However, outsiders trying to imitate Cohen’s returns might instead want to imitate his top 10 positions. Here are his top 10 positions at the end of September:

1-) Gilead Sciences Inc (NASDAQ:GILD): GILD was Cohen's biggest investment at the end of 2010. He had $292 million in GILD shares, which gained 10.8% since the end of September, underperforming the QQQQ’s 16.3% return. Cohen kept his GILD holdings the same during third quarter of 2010.

2-) Life Technologies Corp (NASDAQ:LIFE): Cohen increased his Life stake by 65% in the third quarter. LIFE gained 16.3% since then, outperforming the SPY by 1.4 percentage points. Cohen holds $270 million of LIFE shares. Glenview recently acquired more Life Technologies Corporation shares and has around $525 million invested in LIFE. Lee Ainslie’s Maverick Capital has a large LIFE position as well.

3-) Cigna (NYSE:CI): Cohen had almost $197 million in CI shares at the end of September. He reduced his holding by 16.3% during the third quarter of 2010. CI gained 18.7% since then, outperforming the SPY by 3.8 percentage points. David Tepper's Appaloosa has Cigna in his portfolio too.

4-) Aetna (NYSE:AET): Cohen’s $174 million investment in AET lost 5.8% since the end of September. Cohen decreased his stock holdings 6% since the end of June.

5-) Universal Health Services (NYSE:UHS): Cohen returned 9.8% from his UHS investment of $153 million since the end of September. The stock underperformed the SPY by 5.1 percentage points. Cohen increased the stock holdings by 25.4% since September.

6-) Covidien (COV): Cohen reduced his stock holdings by 41.7% during the third quarter, but he still holds $150 million in COV shares in his portfolio. COV beat the SPY by nearly 7.5 percentage points since the end of September. This is also one of the stocks David Tepper has in his portfolio.

7-) Illumina Inc (NASDAQ:ILMN): Cohen sold 18% of his ILMN shares in the third quarter of 2010. He would have been better off if he hadn’t done so. The stock had one of the best performances in his porfolio over the last four months. ILMN returned almost 45% since then, beating the market by a large margin.

8-) Carefusion (NYSE:CFN): Cohen almost doubled his Carefusion holding during the third quarter. However, the stock underperformed the SPY, returning only 5.4%. Cohen had $143 million invested in this stock at the end of September. Barry Rosenstein's Jana Partners added some CFN shares to his portfolio in the third quarter. David Einhorn, Daniel Loeb, and Craig Effron are other hedge fund managers with CFN positions in their portfolio.

9-) Magellan Health Services Inc (MGLN): Magellan has been one of HealthCor’s long term investments. Cohen made additional purchases during the third quarter, increasing his holdings to $140 million. MGNL gained 4.7% since the end of September, underperforming the XLV by 1.4% percentage points. There were several insiders selling MGLN during January.

10-) Nektar Therapeutics (NKTR): NKTR was one the worst performing stocks in Cohen portfolio, losing 24.4% since the end of September.

Only four of Cohen’s top 10 positions managed to beat the market. The weighted average return of these stocks is 7.4% since the end of September, significantly underperforming SPY’s 14.9% return. The healthcare sector ETF XLV returned 6.1 percent during the same time period. It seems like it's a better idea to follow Cohen’s new ideas than his largest positions.

Disclosure: I am long SPY.

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