“A compelling narrative fosters an illusion of inevitability.”
-Daniel Kahneman, Thinking, Fast and Slow
Every sector has its unique set of challenges, but analyzing the Health Care Sector can sometimes feel more challenging than most.
To break it down, the first obstacle is the daunting task of understanding the US Medical Consumer. It’s immediately obvious that trying to understand the average consumer heading to the mall, a Netflix subscriber, or someone shopping for a Tesla, isn’t remotely in the area code of understanding the path of a patient throughout the Health Care system.
After all: nobody wants to be sick and nobody wants to go to the doctor.
Consumer aversion to medical care throws a massive wrench in the analysis, by essentially removing the rational self-interested individual who populates Rational Choice Theory economic models.
Additionally, it also makes it hard to build confidence investing in Health Care. It’s much easier for me to make up a story about the Netflix subscriber who has too many streaming services and is cutting back because of higher gas and grocery bills, than generalize the experience of a patient getting their knee replaced, the surgeon’s implant choice, the cost to run the operating room, and what insurance will pay.
Back to the Healthcare Grind…
The pandemic forever changed the way US Medical Consumers access care. Convenience skyrocketed when we replaced the in-person doctor visit (including scheduling weeks in advance and travel and waiting room time) with opening an app on your phone.
However, just because a doctor visit was more convenient didn’t mean consumers consumed more doctor visits. In fact, medical consumption remains below trend even now, two years into the pandemic.
There are several reports documenting medical care that was deferred or lost during the duration of the COVID-19 pandemic. Because medical care is still delivered by people, even when it’s delivered through an app, Health Care Aggregate Weekly Hours reported by BLS is a good proxy for medical demand.
If we assume missed Aggregate Weekly Hours equals deferred care, the pool of deferred care that has built up would double the weekly demand for labor. We think it’s a question of when not if that this delayed care returns, the level is clearly big enough that it matters, and COVID-19 seems increasingly less able to suppress the medical need.
Health Care is already a long in #Quad4 according to the Macro Playbook. At the subgroup level we’ve also found that medical consumption accelerates in #Quad4 across most sites of care. Delayed care should accelerate that Quad 4 trend even further.
We recently added HCA to our Best Idea long list expecting they will benefit from these enhanced consumption trends. It’s an added benefit HCA’s factors line up with #Quad4 and Keith continues to like the levels.
The compelling narrative (that is hopefully not an illusion) is: the pandemic suppressed medical care, the pandemic is coming to an end, medical consumers are likely sicker as a result, and during times of economic uncertainty they tend to accelerate their medical spending.
HCA is a big, liquid, low short interest name that stands to see high incremental margins on the incremental patient coming in from the pandemic. If you would like to learn more about my research team's in-depth investing research please reach out to .
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 30yr Yield 2.63-3.05% (bullish)
UST 10yr Yield 2.56-2.95% (bullish)
UST 2yr Yield 2.33-2.62% (bullish)
High Yield (HYG) 79.30-81.16 (bearish)
SPX 4 (bearish)
NASDAQ 13,056-14,001 (bearish)
RUT 1 (bearish)
Tech (XLK) 143-154 (bearish)
Gold Miners (GDX) 38.11-41.63 (bullish)
Utilities (XLU) 74.97-77.33 (bullish)
Healthcare (PINK) 26.99-28.26 (bullish)
REITS (XLRE) 48.19-50.21 (bullish)
Shanghai Comp 3110-3254 (bearish)
Nikkei 26,327-27,393 (bearish)
DAX 13,876-14,590 (bearish)
VIX 20.05-25.62 (bullish)
USD 99.35-101.14 (bullish)
EUR/USD 1.076-1.095 (bearish)
USD/YEN 124.21-128.94 (bullish)
Oil (WTI) 91.55-108.88 (bullish)
Nat Gas 5.98-7.89 (bullish)
Gold 1 (bullish)
Copper 4.60-4.81 (bullish)
Silver 24.18-26.51 (bullish)
Have a great day out there,
Tom Tobin
Managing Director, Healthcare Sector Head
