Michael Burry’s New Stock Picks

Published on March 13, 2021 at 9:57 am by Jose Karlo Mari Tottoc in Hedge Funds, News

In this article we take a look at Michael Burry’s new stock picks. You can skip our detailed discussion of Burry’s history, his hedge fund’s performance and go to Michael Burry’s Top 5 New Stock Picks.

Michael James Burry is an American investor and hedge fund manager who founded Scion Capital in 2000. Burry now heads Scion Asset Management which has $224.7 million in managed securities as of the end of 2020. Burry rose to fame as one of the very few investors who foresaw the 2008 subprime mortgage crisis and made a fortune by placing prescient bets just before the crisis started.

From Medical Practice to Stock Market

The 49-year-old who lost an eye to cancer when he was just two years is a medical doctor who completed his education at the Vanderbilt University School of Medicine and started practicing at the Stanford Hospital. But Burry’s real passion was stocks and investing. After signing off from the hospital, he would spend hours researching stocks and discussing financial markets on online messages boards and famous financial website Silicon Investor. His stock picks were extremely successful, and his in-depth and brilliant posts online soon attracted major firms and personalities like Joel Greenblatt and Vanguard.

Eventually Burry left his practice and started fulltime investing by opening his own investment fund. He was an instant success. Burry shorted tech stocks when everyone was buying them during the internet bubble.

Michael Burry’s Hedge Fund’s Returns

In its first year, Burry’s hedge fund Scion was up 55%, while the S&P 500 fell 11.88%. In 2002, Scion was up 16%, while the S&P 500 fell 22.1%. The next year, S&P 500 jumped 29% but Burry’s fund rose by a spectacular 50%. Since its inception through 2008, Scion Capital returned almost 480% net of fees, while the S&P 500 returned just 3% during the period. Burry’s profitable bets against the market during the housing crisis account for a major portion of these returns.

Michael Burry of Scion Asset Management

While Burry has proved his stock-picking skills consistently, the same cannot be said of the broader hedge fund industry. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017. Between March 2017 and February 5th 2021 our monthly newsletter’s stock picks returned 187.5%, vs. 75.8% for the SPY. Our stock picks outperformed the market by more than 111 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

The Secret Behind Michael Burry’s ‘Comical’ Success

Burry sticks to the principles of value investing. According to Michael Lewis, the author of the famous book titled “The Big Short,” Burry was “madly, almost comically successful” even when the Wall Street was undergoing a disaster. Contrarian in his approach and confident in his research, Michael Burry always thinks long-term. Consider his bets on Japanese stocks, for example. When the coronavirus started pummeling the global markets, almost all of his picks crashed. But in an interview to Japan Times, Burry said that the virus was a “temporary problem” and the companies he is bullish on have a long-term value which is not affected by temporary factors.

How Did Michael Burry Foresee the Housing Crash

Sometime during 2005, while doing stock research for his clients, the subprime market got Burry’s attention. Burry, who is diagnosed with the Asperger syndrome, was quick to notice that the bond market was absorbing huge amounts of subprime mortgage. He decided to bet against these potentially worthless loans using credit default swap. He bet that the subprime mortgages would begin to start losing value once the original rates were replaced by much higher rates.

Burry recently said in an interview:

“We bought basically short $8.4 billion of credit default swaps related to mortgages or financial companies. We had a giant bet for us, and I was extremely confident in the outcome. I know for sure that some of them(investors) thought I lost my mind. A lot of clients were just glad to be done with it at the end. Perhaps I had made the trade too big for the fund, and my confidence in the trade had ticked off some people. Even if it’s remarkable, there are investors who made tend of millions off this. We’re still pretty upset.”

In this article we will examine Michael Burry’s portfolio to discuss his new stock picks. We will use his hedge fund’s 13F filings disclosed at the end of the fourth quarter.

9. Ares Capital Corporation (NASDAQ: ARCC)

Value: $2,111,000
Percent of Michael Burry’s 13F Portfolio: 0.94%
Number of Hedge Fund Holders: 15

New York-based Ares Capital is a specialty finance company that primarily invests in first lien senior secured loans, mezzanine debt, automotive services and consumer products. In February, the company announced plans for a public offering of 13.5 million shares. In the fourth quarter, the company’s core EPS came in at $0.54, crushing past the Street’s consensus of $0.40. Total investment income in the quarter totaled to $440 million, compared to $359.2 million consensus estimate.

As of the end of the fourth quarter, 15 hedge funds in Insider Monkey’s database of 887 funds held stakes in Ares Capital, compared to 22 funds in the third quarter. Arrowstreet Capital is the biggest stakeholder in the company, with 2.3 million shares, worth $39.1 million.

8. SunCoke Energy, Inc. (NYSE: SXC)

Value: $3,376,000
Percent of Michael Burry’s 13F Portfolio: 1.50%
Number of Hedge Fund Holders: 19

Illinois-based Suncoke ranks 8th on the list of Michael Burry’s new stock picks. The raw material processing company owns several coke-making facilities in North America. The stock is up about 160% over the last 12 months. In the fourth quarter, the company posted GAAP EPS of -$0.06, beating the Street estimates by $0.06. Revenue came in at $310.1 million, above the consensus by $69.95 million.

The company is also getting the attention of the smart money, as 19 hedge funds tracked by Insider Monkey reported owning stakes in the company at the end of the fourth quarter. Scion Asset Management owns 776,177 shares of the company, worth $3.4 million.

7. Ingles Markets, Incorporated (NASDAQ: IMKTA)

Value: $4,753,000
Percent of Michael Burry’s 13F Portfolio: 2.12%
Number of Hedge Fund Holders: 20

North Carolina-based supermarket chain Ingles ranks 7th on the list of Michael Burry’s new stock picks. The company operates over 200 supermarkets in Virginia, South and North Carolina, Georgia, Tennessee and Alabama. In its fiscal first quarter, the company’s net sales came in at $1.19 billion, which shows a 10.4% growth on a year-year-year basis. Gross profit in the quarter came in at $314.2 million. The stock is up 74% over the last 12 months.

According to our database, the number of IMKTA’s long hedge funds positions increased at the end of the fourth quarter of 2020. There were 20 hedge funds that hold a position in Ingles Markets compared to 16 funds in the third quarter. The biggest stakeholder of the company is Mario Gabelli’s GAMCO Investors, with 1 million shares, worth $42.9 million.

6. HollyFrontier Corporation (NYSE: HFC)

Value: $6,463,000
Percent of Michael Burry’s 13F Portfolio: 2.88%
Number of Hedge Fund Holders: 34

Texas-based Hollyfrontier is a fuel refining company that produces light products like gasoline, diesel fuel, jet fuel, and modified asphalt. In the fourth quarter, the company’s finances were clobbered amid the coronavirus crisis. Its refining segment posted an EBITDA of negative $111.5 million compared to $171.6 million in the same quarter last year. Refinery gross margin fell 71% on a year-over-year basis. Total operating costs and expenses rose 5.6% on a quarter-over-quarter basis. Despite that, the stock is up 112% over the last 12 months.

With a $62.5 million stake in HollyFrontier, Arrowstreet Capital owns 2.4 million shares of the company as of the end of the fourth quarter of 2020. Our database shows that 34 hedge funds held stakes in HFC as of the end of the fourth quarter, versus 28 funds in the third quarter.

Click to continue reading and see Michael Burry’s Top 5 New Stock Picks.