On Sale: Own This Hedge Fund Sage's Latest Healthcare Pick on the Cheap

Hedge fund billionaire Larry Robbins' Glenview Capital had a rough August. The fund was down 5.5 percent during the month and is down 2.8 percent year to date, according to Reuters. Despite the recent set-back, Glenview has a long-term track record any money manger would die for. Glenview's flagship fund returned 26 percent annually since 2012, easily outperforming the market and most peers. Glenview Capital has particularly had a strong track record with healthcare stock, predicting their massive run-up with Obamacare. This leads us to our next focus stock, which is down 13% from its 52-week high, providing you an opportunity to own it cheaper than, or around that same price Glenview Capital paid.

The stock in question is HealthSouth (NYSE: HLS).

Since the first quarter of 2015. Glenview has been steadily increasing its stake in HealthSouth, culminating with a 13G filing on July 31, showing a 5,903,100 share, or 6.5%, stake. The firm bought 1.7 million shares in Q1, 2.8 million in Q2 and 1.4 million shares between June 30 and July 21. As you can see, most of the shares (4.2 million) were bought between 04/01/15-07/21/15. The stock started this period of trading at $43.32 and ended at $45.77. Logic would suggest, Glenview's cost basis is in the low-to-mid range. With share trading at $42.10 currently, this gives you an opportunity to own the stock for the same price or cheaper than Glenview.

Not only is HealthSouth base business trends solid, the company is considered well positioned for the shift towards value-based reimbursement. In addition, the company has been on an acquisition spree of late with a focus on expanding its Home Health business.

The company entered the Home Health space earlier in the year with the acquisition of Encompass on January 1, 2015. They company's latest deal was also in the space with the acquisition of home health provider CareSouth. Following the closing of the deal, Mizuho analyst Ann Hynes estimates home health will account for 18-19% of total revenue, versus an estimated 16% currently and zero at the start of the year.

Hynes said the latest CareSouth deal gives HealthSouth scale. "Given the shift toward value-based and bundled reimbursement arrangements, we expect volumes to continue to concentrate within at-scale, high quality providers and indeed see this trend as likely to accelerate," Hynes said. "Further, as the IRF business has likely reached mature margins, these transactions could meaningfully extend HLS' future growth path via capacity growth across post-acute settings and by building synergies within local markets between IRFs and home health."

HealthSouth is likely done with large deals for now, giving it time to pause and consolidate its purchases and focus on driving EBITDA up and leverage down over the year following the deals' closings, Hynes predicts.

With a strong base business, a solid position for the shift towards value-based reimbursement, pending scale in Home Healthcare from recent deals, not to mention the discount to prices Glenview Capital paid, the case can be easily made that HealthSouth is a stock to consider adding to your portfolio.

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