4 Michael Burry shares to buy (and 3 to sell)
While the hedge fund manager of Scion Asset Management rose to fame from the movie “The Big Short,” everyone seems to want to talk about Michael Burry’s stock picks. Recently, CNBC featured the contrarian and often enigmatic investor, revealing Scion’s top 10 holdings at the end of the first quarter.
True to form, these Michael Burry stocks provide an eclectic canvas, reflecting the brilliant mind of the doctor turned investor turned social media influencer. Seriously, investors should consider the ideas, regardless of their feelings toward Burry. Notably, most of the holdings in the top 10 reflect new positions. As with everything, there are stocks to buy according to Michael Burry and I would say stocks you may want to avoid. Below is a critical breakdown of some of the hedge fund manager’s best ideas.
If you’re a follower of Michael Burry’s stock picks, target the Chinese e-commerce giant JD.com (NASDAQ:J.D.) may be obvious. Of course, the road has been difficult for JD. Since the start of this year, shares have plunged more than 39%. As China’s economy rebounds, the overall effort has been uneven. Combined with broader headwinds such as extremely high inflation in several parts of the world and US regional bank failures, investors have moved away.
Yet this framework could present a contrarian opportunity for those looking to the future. After all, part of Michael Burry’s investment strategy relies on contrarian thinking; that is, to see what could be, not what is now. While focusing on domestic titles may have worked in the past, in the future the international arena could offer superior growth opportunities.
Moreover, it is interesting that by CNBC, Scion increased its position in JD by 233%. It’s about as sure of a read as you’ll get of the most recent Michael Burry stock picks. Finally, Wall Street analysts view JD as a strong consensus buy. Their average price target sits at $62.18, implying more than 77% upside potential.
If you thought JD.com was a no-brainer for Michael Burry’s stock picks, then Ali Baba (NYSE:BABA) must also be indicated. Certainly, the company faces similar challenges to its rival, but to a lesser extent. For example, since the January open, BABA stock has fallen almost 10%. However, stocks appear to have stabilized recently, perhaps making it an attractive discount.
Again, Alibaba’s bullish narrative focuses on what could be for the Chinese economy. Understandably, investors are nervous about the slow recovery process. However, China has also imposed draconian zero Covid policies on a scale unheard of this side of North Korea. In other words, the Chinese consumer market may have a long road to recovery. Thus, patience can be rewarded. Moreover, BABA ranks easily among stocks to buy according to Michael Burry. By CNBC, Scion increased its exposure to Alibaba to 100%. Much like some of his tweets, Burry doubles down.
Finally, BABA has a unanimous buy view with a price target of $147.38, implying nearly 78% upside potential.
Sibanye Stillwater (SBSW)
Among the pleasures of investing in Michael Burry stocks is their eclectic nature. Remarkably, the South African precious metals mining company Sibanye Stillwater (NYSE:SBSW) made the cut, and no doubt for a darned good reason. With growing concerns over the debt ceiling fiasco, the financial stability of the mighty United States should not be taken for granted. However, with Sibanye, you can enjoy hands-on exposure to gold other than hanging around investment bricks.
As with other Michael Burry stock picks, SBSW will require a contrarian mindset. Since the start of this year, shares have fallen almost 30%. And in the past 365 days, their net worth has plummeted nearly 38%. Still, with gold continuing to perform reasonably well, SBSW might be worth a shot.
Another reason why SBSW is among the stocks to buy according to Michael Burry is the underlying value proposition. According to Gurufocus, the market values SBSW at a forward multiple of 6. As a discount to projected earnings, Sibanye ranks better than 78.53% of the metals and mining industry. Also, analysts consider SBSW a solid buy. Their average price target stands at $12.53, implying more than 64% upside potential.
Coherent Corp (COHR)
Perhaps the least upsetting of Michael Burry’s stock picks – and that’s on a relative basis, of course – Coherent company (NYSE:COHR) provides a sensible fundamental argument. Based in Saxonburg, Pennsylvania, the maker of optical materials and semiconductors can benefit from the incentive to increase domestic production of technology goods. To be fair, Asia still dominates the semiconductor ecosystem. Nonetheless, incremental progress could yield big gains for the domestic sector.
With Coherent representing a mid-cap game — with a market cap of $4.45 billion — COHR could enjoy an outsized return on domestic tech output. This seems to guide the larger reason why COHR is one of the stocks to buy according to Michael Burry.
Another factor can come down to finances. According to Gurufocus, the market values COHR at 0.89 times tracking sales. As a revenue discount, Coherent ranks better than 64.73% of its peers. Additionally, COHR is trading at 0.56 times expected free cash flow. On the other hand, the median statistic for the sector is higher by 1.41. Finally, analysts view COHR as a strong consensus buy. Their average price target stands at $42.83, implying more than 34% upside potential.
Capital One Financial (COF)
Now, while we all appreciate the upside potential of Michael Burry’s stock picks, the man is also human. At some point, he’s going to post a few goofs. One of them could be Capital One Financial (NYSE:COF). To be clear, I’m not suggesting that you sell COF if you own it. I’m not saying shorten it either. It’s rather a tricky idea given the wider circumstances.
On the positive side, I can understand why COF might be one of the stocks to buy according to Michael Burry. With major headwinds such as inflation, regional bank failures and a possible recession resulting from the debt ceiling crisis, consumers could start taking on debt to stay afloat. Thus, the relevance sees the COF increase by almost 10%. Yet COF could also be one of the stocks to sell according to Michael Burry. Yeah, it’s a new post so Scion probably won’t let it go. However, the problem with a debt-related business is that you need to be sure borrowers will repay their loans.
However, with consumer debt topping the $17 trillion mark for the first time, I’m not sure COF is ideal.
Signet Jewelers (GIS)
With the inclusion of Bookmark Jewelers (NYSE:GIS) in Michael Burry’s list of stock picks, the hedge fund manager gave insight into his thought process. Here is my take on the matter. With Covid-19 initially forcing everyone to self-quarantine, the dynamic imposed a loneliness problem on society. Therefore, once restrictions and fears of infection were lifted, people were ready to socialize again.
Plus, those stimulus checks might not be enough for a down payment on a house. But they could buy a pretty engagement ring. And so far, the narrative looks bullish for Signet, with SIG gaining more than 7% since the January open. However, this love affair might not last. Earlier this year, Signet reported lackluster engagement ring sales. Moreover, he expects more of the same for the future. From a fundamental perspective, SIG could be considered one of the stocks to sell according to Michael Burry.
Still, if you want to buck the trend, the market is pricing SIG at a forward multiple of 6.78. On paper, Signet ranks better than 91.41% of the cyclical retail industry. What I mean is that there could be a reason for the discount (and not a good one).
Zoom Video Communications (ZM)
Of all of Michael Burry’s top 10 stock picks, the inclusion of Focus on video communications (NASDAQ:ZM) took me by surprise. By CNBC, ZM represents a new position with Scion, which owns (at the end of the first quarter) $7.4 million in stock. It is a difficult position because of its apparent lack of relevance. I mean, I respect Burry’s counter-arism, but maybe that went a little too far.
Since the start of the year, ZM has lost 1.5% of its market value. Over the past year, shares have fallen more than 30%. As Barrons pointed out, Zoom initially rose late in trading on Monday after the video conferencing software specialist reported better-than-expected results for its fiscal first quarter. Unfortunately, on Tuesday, ZM fell 8%, reversing the positive return from the previous five sessions.
Basically, Zoom could lose much of its relevance if the job field fully normalizes. In other words, if employers start calling their employees back to the office, the need for teleconferencing platforms would decrease. Also, it’s not like Zoom is an exclusive provider of such services. So while investing in Michael Burry stocks can be lucrative, I would be cautious with ZM.
As of the date of publication, Josh Enomoto had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.