‘A cold dark place’ – Michael Burry thinks the market has enough room to collapse. But he finally sees value in these four stocks.
Michael Burry – the hedge fund manager described by Christian Bale in The Big Short – has invested aggressively during this market decline.
Burry’s latest 13F filing for Q1 2022 shows a wide range of new investments and interesting strategic moves with options. That’s a significant shift from the previous quarter, when Burry sold most of his stock portfolio, calling for the “mother of all crashes.”
He is not exactly optimistic about the general market and has recently issued a serious warning about inflation.
“Ephemeral, no. Peak, no. To the moon? If you mean a cold dark place,” Burry wrote in a tweet that has since been deleted.
But the man who shorted – and won – the US housing market sees opportunities.
Metaplatforms (META) and Alphabet (GOOG)
Burry’s commitment to big technology is remarkable.
Technology and growth stocks have been out of favor for nearly half a year. It is a contrarian move to add these two stocks to the portfolio for the first time. Burry’s portfolio now includes 6,500 shares of Google parent company Alphabet Inc. and 80,000 shares of Meta Platforms Inc., Facebook’s parent company. They are, respectively, his fourth and sixth largest possessions.
The move can be seen as a vote of confidence in digital advertising. It can also be a signal of undervaluation. Both stocks trade approximately 13 and 20 times future earnings, respectively.
Travel website Booking.com is now the second largest holding in Burry’s Scion Asset Management portfolio. He bought 8,000 shares of the company in the first quarter.
Booking shares trade at a free cash flow ratio of 17. That means the cash flow return is as high as 5.9%. With international borders reopening and lockdowns easing, Booking could be an ideal bet for global travel recovery.
Burry bought a lot of technology stocks this quarter, but that doesn’t mean he’s bullish on the entire industry. Hidden in the 13F application was a huge short bet against Apple.
He reported 206,000 put options on Apple stock at the end of the first quarter. The face value of this bet is approximately $28 million. However, the actual cost may be much lower, given how option premiums are priced.
Nevertheless, it is surprising that one of the world’s most famous short-sellers targets one of its most valuable companies. Apple has lost about 18% of its value so far. Supply chain disruptions in China, and declining consumer purchasing power, could have short-term consequences for Apple.
The stock also trades at a relatively high valuation. Apple shares are trading at a price-to-earnings ratio of 22, significantly higher than the historical average of 15.
Warner Brothers Discovery (WBD)
Media giant Warner Brothers Discovery is now Burry’s third-largest holding company. He added 750,000 shares in the first quarter.
The merger of Discovery and Warner Media has resulted in a global content juggernaut. This conglomerate has rights to iconic characters, including Batman, sports channels in Europe, HBO, and CNN.
The stock is down about 44% due to debt concerns and the competitive landscape for online streaming. However, the company expects to generate $3.65 in free cash flow per share next year, representing an FCF return of 26% at the current market value.
This could be why Burry has made such a big bet on it.
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