Michael Burry Warns of “Last Hurrah” for Corporate Earnings but Still Invests in These 4 Stocks.
You must learn to look beyond his apparent pessimism to discover the opportunities he sees in the current market.
Those who are used to following Michael Burry's tweets and other statements have gotten used to distinguish between what he says and what he does. This is something that everyone in the financial world needs to do. If you don't, you're likely to give in to the narrative that some people are trying to impose on you for their profits.
Take the example of a tweet by Michael Burry published at the end of July 2022 after American companies released better-than-expected quarterly results.
Michael Burry made his usual pessimistic tweet:
“These earnings reports and by Jove the whole season have a ‘Last Hurrah’ feel”
If you're looking for a reference to this tweet, you'll have a hard time, since Michael Burry has a habit of quickly deleting this type of tweet from his Twitter account. Fortunately, the Twitter account @BurryArchive has taken the habit of archiving each of the tweets of Mister “Big Short”:
At first glance, you might be thinking that Michael Burry recommends staying away from the stock market right now, despite the strong rebound seen in the S&P 500 or the Nasdaq in July 2022. An S&P 500 that finished July 2022 above 4,100 points:
This is where you need to learn to read between the lines and go beyond just Michael Burry's Twitter statements. Let's dig in and check out Burry's latest 13F filing. This will allow you to see that despite this type of doom and gloom message, Michael Burry has been quite aggressive in the equity market in the midst of the Bear Market.
This change in Michael Burry's attitude is notable, as he was talking in the previous quarter about the coming “mother of all crashes”. If his statements do not indicate an exacerbated Bullish sentiment, we can see that Michael Burry saw opportunities in at least 5 companies last quarter.
Meta and Alphabet
Michael Burry sees opportunities in the tech sector, which has been hit hard by the stock market since the beginning of the year. After having abandoned tech and growth stocks for the past 18 months, Michael Burry has just added to his portfolio 6,500 shares of Alphabet, the parent company of Google, and 80,000 shares of Meta, the parent company of Facebook. These two companies now represent his fourth and sixth largest holdings respectively.
Buying shares of companies that everyone else is selling in panic mode is a contrarian investor move. This is Michael Burry's investing philosophy.
You can see these two stock purchases as a vote of confidence in digital advertising, as the two stocks trade at 14 and 20 times forward earnings respectively.
Booking.com
The travel company Booking.com has become the second-largest holding in Burry's Scion Asset Management portfolio. Michael Burry bought 8,000 shares of Booking.com in the past week. Booking.com stock trades at a price-to-free cash flow ratio of 18. This means that the cash flow yield is 5.6%. With the reopening of international borders due to a COVID-19 pandemic that is starting to be better controlled, Michael Burry is betting that Booking.com will benefit from the rebound in global tourism.
Apple
While Michael Burry has seen opportunities in the tech sector in recent weeks, he's not as bullish on Apple. He has declared 206,000 put options on Apple stock at the end of the first quarter of 2022. The notional value of this bet is about $33 million. However, the actual cost could be much lower given the way option premiums are valued.
It may come as a surprise to see one of the world's most famous short-sellers targeted as the world's most valuable company, or at least one of the most valuable. Apple has lost a little over 11% since the beginning of the year. Supply chain issues in China with lower consumption due to rampant inflation in America could impact Apple negatively, which would push Michael Burry to make this bet.
The "Big Short" investor can also see that the stock is trading at a relatively high valuation. Apple stock trades at a price-to-earnings ratio of 26, which is significantly higher than the historical average of 15.
Warner Brothers Discovery
Media giant Warner Brothers Discovery is now Michael Burry's third-largest holding. He added 750,000 shares in the first quarter of 2022. The merger of Discovery and Warner has created a global content behemoth. The conglomerate owns the rights to iconic characters such as Batman, sports channels in Europe, HBO, and CNN.
The stock is down 40% since the beginning of 2022:
The drop is due to concerns about the conglomerate's debt and the increasingly competitive landscape of the online streaming world. Still, the company expects to generate $3.65 in free cash flow per share next year, which would imply a free cash flow yield of 24% at the current market value.
Michael Burry decided to make a big bet on Warner Brothers Discovery.
Final Thoughts
As always in life, you need to see what people do rather than just focus on what they say. That way you can learn a lot more about their real strategies. In the case of Michael Burry, you can see that despite the pessimism that seems to characterize his every tweet, he still sees opportunities in the current market.
It's up to you to look at those opportunities to see if they could be an opportunity for you as well. After all, we all have different investment goals and profiles.
Some reading
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