Below are the top 5 stocks Big Short’s Michael Burry is betting on to beat the volatile market trends. For a comprehensive list please Big Short’s Michael Burry Is Betting On These 11 Stocks.
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5. NOW Inc. (NYSE: DNOW)
Big Short’s Michael Burry is betting big on energy stocks in 2021. He initiated a position in downstream energy product provider NOW Inc. (NYSE: DNOW) during the fourth quarter by purchasing shares worth more than $10.77 million. It is the fifth-largest stock holding of Scion Asset Management, representing 4.79% of the overall portfolio. Shares of NOW soared close to 50% since the beginning of this year, thanks to improving commodity prices.
Palm Valley Capital, an investment firm, highlighted a few stocks including NOW Inc in a Q3 investors letter. Here is what Palm Valley Capital stated:
“NOW is a 2014 spinoff from National Oilwell Varco and has a 150-year legacy as a distributor to the oil and gas and industrial markets. Through a vast network of 245 locations, NOW’s 300,000 SKU product offering addresses all segments of the energy value chain, from upstream E&Ps to midstream infrastructure to downstream refining, in addition to industrial end markets including chemicals, mining, utilities, and manufacturing. When energy companies reduce activity, NOW suffers. However, it has streamlined its business since the last oil and gas downturn and expects reduced operating losses this round. As of June 30th, NOW had $269 million of cash and no debt ($497 million market cap), although if demand recovers as we expect, some cash will be reinvested in working capital. The stock is currently selling for 66% of tangible book value.”
4. Lumen Technologies, Inc. (NYSE: LUMN)
Big Short’s Michael Burry is bullish on the fundamentals of Lumen Technologies, Inc. (NYSE: LUMN). He has increased his stake in Lumen by 43% in the fourth quarter, making it the fourth-largest stock holding of the 13F portfolio. Burry’s stock-picking strategy also worked in the case of Lumen Technologies as shares of the facilities-based communications company grew 24% since the beginning of this year. Moreover, the company offers more than an 8% dividend yield to shareholders. Here is what Longleaf Partners said about Lumen in its 2020 Q4 investor letter:
“Lumen (-19%, -2.71%; -1%, -0.12%), the fiber telecom company formerly named CenturyLink, was a top detractor for the year and the only (slight) detractor in the fourth quarter. During the last quarter, Enterprise fiber revenues grew 0.8% year-overyear, International and Global declined 2.6% and Small and Medium Business (SMB) shrunk 5.8% due to COVID repercussions. Yet margins slightly increased due to the strong cost controls of CEO Jeff Storey and CFO Neel Dev. Despite significant deleveraging over the last two years and multiple debt issuances this year at low to mid-single digit interest rates, the stock trades at an incredibly low multiple of <5x FCF. We believe Lumen can grow by continuing to invest into fiber, which should outweigh its declining legacy copper landline business. Numerous recent large transactions for fiber peers at double-digit EBITDA multiples and landline peers at mid-single digit EBITDA multiples also suggest that Lumen could monetize several of its segments at good prices well beyond its total market capitalization today. We have stepped up our engagement with the company and signed a non-disclosure agreement (NDA) last month, so unfortunately we cannot say more other than “stay tuned.”
3. The Kraft Heinz Company (NASDAQ: KHC)
Scion Asset Management has initiated a call option position in The Kraft Heinz Company (NASDAQ: KHC) during the fourth quarter. KHC share price has extended the upside momentum into 2021 amid strong financial numbers. The company has generated December quarter revenue of around $6.94B, up 6.1% from the year-ago period, with expectations for similar growth in the upcoming quarters.
The market analysts anticipate more upside for KHC stock despite the recent gains. JPMorgan analyst Ken Goldman said: “We still see some upside – our price target is $41 and KHC has a 4.2% annual dividend yield – but not enough to necessarily warrant an Overweight rating. We had not anticipated the KHC shares working this well this fast, but now that they have, we want to respect valuation and the potential limits to the upside, as we see them.”
2. Pfizer Inc. (NYSE: PFE)
The hedge fund has invested $31 million in Pfizer Inc. (NYSE: PFE) call position, according to the latest filings. It is the second-largest stock position of Scion Asset Management, accounting for 13.83% of the overall portfolio. However, shares of Pfizer fell sharply since the beginning of this year, losing all the gains it had generated on coronavirus vaccine discovery. The company has generated 11.8% year-over-year revenue growth in the latest quarter.
The New York-based drug maker announced mixed financial results for the fourth quarter. It reported earnings of $594 million, or 10 cents per share for the quarter, as compared to a loss of $337 million, or 6 cents per share in the comparable period of 2019. On an adjusted basis, profit rose to 42 cents per share but missed the consensus forecast of 50 cents per share.
Revenue jumped 12 percent on a year-over-year basis to $11.68 billion, beating the analysts’ average estimate of $11.48 billion. If we look at the sales performance of different segments, oncology vaccines revenue jumped 17 percent, while rare disease vaccines revenue climbed 26 percent in the quarter. Moreover, revenue from internal medicine and hospital segments rose 1 percent and 8 percent, respectively.
Pfizer raised its earnings outlook for 2021. It now expects to report earnings in the range of $3.10 per share to $3.20 per share for the current fiscal year, as compared to its previous guidance between $3.00 per share to $3.10 per share. Moreover, revenue is expected to come between $59.4 billion to $61.4 billion, as compared to the consensus forecast of $58.3 billion.
The improved outlook came as the company expects to generate $15 billion in revenue from its COVID-19 vaccine. Pfizer plans to make 2 billion doses of the vaccine this year.
1. Citigroup Inc. (NYSE: C)
Big Short’s Michael Burry is also betting big on Citigroup Inc. (NYSE: C) in 2021. His firm has initiated a big call option position in the banking giant during the fourth quarter, accounting for 14.81% of the overall portfolio. Shares of Citigroup soared close to 9% since the beginning of this year, enlarging six months’ gains to 30%.
Oakmark Select Fund, an investment advisory firm, highlighted few stocks including Citigroup in the Q3 investor’s letter. Here is what Oakmark Select Fund stated:
“Citigroup was our largest detractor for the period due to Covid-19-related concerns that have hurt the entire financial sector, as well as a handful of Citigroup-specific headlines that amplified near-term uncertainty. We believe that investors’ short-term focus can cause them to miss the bigger picture. The company has remained profitable throughout the Covid-19 crisis to date. It continues to operate with significant excess capital relative to regulatory minimums, even as it has added more than $10.5B to credit reserves year to date. We believe the company is proving its resilience during a real-life stress test. Yet, despite this positive early evidence, Citigroup currently trades at only 60% of tangible book value and slightly over 5x 2019 earnings per share. Given that we think the company’s normalized earnings power is greater than what it achieved in 2019, we find these valuation metrics especially attractive. As we move beyond the pandemic, we think investors’ focus will shift to the underlying quality of the business and they will value the resilience Citigroup demonstrated during this crisis.”
Please also see 11 Best Lithium Stocks To Buy Now and Ray Dalio’s Top 10 Stock Picks for 2021.
