HCA Healthcare (HCA US) $375.31

Truth be told, we’ve been weighing up what to do with HCA Healthcare (HCA US) in the International Equities Portfolio since their better-than-expected quarterly result last month (covered here), which showed strong momentum across their ~2500+ healthcare sites in the US and UK. The better quarterly and upgraded FY24  guidance has seen the stock up another ~10% in the last month, stretching its valuation further. HCA has been an outstanding stock for us in recent years; we first bought it back in July of 2022 around $US170, sold that position for $US290 in June of 2023 before re-entering ~$US225 in November of 2023, with HCA closing overnight at $US374.21 – if only they all performed so well!

• Our current position is up nearly 70%, which is nice, though we always try to disregard a position’s P&L when assessing its future in the portfolio.

On both occasions, we bought HCA, and the catalyst has been valuation.  What tends to be a fairly consistent business over time, has been priced on a low of 11.4x earnings and a high of 15.7x earnings, which is where it currently resides.

While HCA could easily hold its current earnings multiple and continue to rally further based on earnings growth alone, we don’t think the type of business that HCA operates (hospitals and day clinics) lends itself to the concept of uninterrupted growth. We’ve seen several hiccups in recent years, and when that happens, the market tends to re-rate the multiple lower, which amplifies any drop in earnings

• We like the healthcare thematic, though HCA is now simply too expensive for MM, and we’re looking to take our profits from the position.