HCA Healthcare: A Fallen Angel

11/20/2017 5:00 am EST

Focus: HEALTHCARE

Jim Powell

Principal Analyst, Global Changes & Opportunities

To find "fallen angels" I look to blue chip stocks that have already suffered crashes due to management blunders and other problems. These bargain-priced stocks are just what is needed for this late stage in the bull market, asserts Jim Powell, editor of Global Changes & Opportunities Report.

Our goal is to buy the world’s finest blue chip stocks when their prices have been knocked down — and hold them until they recover. It’s not a secret strategy, it isn’t hard to do, and it isn’t sexy.

One company that fits this investment criteria — and is behaving as we might expect in today’s high speed world — is HCA Healthcare (HCA). Besides being attractive in terms of its price and fundamentals, the company has the added advantage of being in a defensive industry that has a long history of doing well during good times and bad.

HCA is the nation’s largest hospital system. The company has 175 general acute care facilities, three psychiatric hospitals, and 118 freestanding surgery centers.

The company is also keeping up with the trend in healthcare to operate specialty centers for common diseases, substance abuse clinics, urgent care facilities, outpatient care centers, imaging services, physical therapy centers, and so on.

HCA is a big business that’s still growing. Last quarter, the company added 5 hospitals to its network, which brought the total for the year up to 7. The advantage of being the largest in any field is nowhere more valuable than in the healthcare industry.


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When people have medical problems, they head for the biggest and best hospital that they can find. That, in turn, attracts the best doctors and nurses, which makes the facilities even more successful. It’s what economists call a virtuous loop.

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The reason that I am recommending HCA now is because the company suffered costly hits when Hurricane Harvey devastated several cities in the Gulf Coast region. The company got whacked again by Hurricane Irma in the profitable Florida market. Various floods of lesser magnitude also hurt profits in several other regions this year.

As a result, the stock is down some 5.1% this year. Much more importantly, the storms interrupted what would have been another year of gains.

I’ve looked at HCA’s projected numbers for rebuilding its strength in the wake of the hurricanes, and they are impressive. Most facilities will be back online within a few months. When it happens, I think HCA will recoup its stock loss, and resume its long-term upward growth.

One last point: HCA pays no dividend, a company policy since 2011. What the company does instead is fund an aggressive stock buyback program that boosts investor’s capital returns. HCA’s stock buyback program has been more advantageous to investors than paying dividends.

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