Despite being one of the few prominent investors in the world to recognize the bubble brewing in the subprime mortgage markets and the crisis it would lead to when it burst, Michael Burry received only limited recognition for his talent until renowned writer Michael Lewis of ‘Moneyball’ fame wrote about Mr. Burry’s journey in the 2010 bestseller ‘The Big Short: Inside the Doomsday Machine’. That recognition has turned into even greater fame more recently after the release of the movie by the same name, in which Mr. Burry is played by star actor Christian Bale. As the ending of the movie showed, even after making outsized gains during the financial crisis, Mr. Burry soon closed his hedge fund, Scion Capital LLC, due to the continuous redemption pressure he faced from his investors while betting against the housing market. However, what the movie didn’t show was that Mr. Burry has been back in the game since 2013. He started another hedge fund, Scion Asset Management, LLC, later that year and although he has been predominately investing in water, his fund recently revealed a fairly large U.S equity portfolio, submitting its first 13F filing with SEC, for the reporting period ending December 31. According to the filing, Scion Asset Management, LLC’s U.S equity portfolio was worth nearly $80 million at the end of 2015 and its top-10 holdings amassed 80.79% of the value of that portfolio. In this article, we are going to analyze the maverick investor’s top five bets for 2016.
We determine hedge fund sentiment by analyzing the equity portfolios of some of the best-performing hedge funds and institutional investors. Through extensive research, we have determined that the due diligence that these investors employ, as well as their long-term focus makes them the perfect targets to emulate (see the details here).
#5 First Solar, Inc. (NASDAQ:FSLR)
– Shares Owned by Scion Asset Management (as of December 31): 100,000
– Value of Holding (as of December 31): $6.6 million
Unlike most of its peers, which have slumped quite hard over the past few months, First Solar, Inc. (NASDAQ:FSLR) has been on an upward march since the start of the fourth quarter, rising by 48.24% during that period. Amid a broader market decline in 2016, the stock has continued to outperform, losing only 3.82% year-to-date. Most analysts feel that First Solar is one of the best alternative energy stocks to own, especially in the wake of the climate change deal approved by members of over 200 countries at the UN Climate Change Conference held at Paris recently. The stock has an average rating of ‘Overweight’ from the 21 prominent analysts who cover it and an average price target of $76.24, suggesting upside potential of over 20%. Analysts’ expect First Solar to report EPS of $0.77 on revenue of $929.80 million for the fourth quarter when it releases those results on February 23. Those figures would represent a year-over-year decline from the EPS of $1.89 on revenue of $1.01 billion that it reported for the same quarter of the previous year. Ken Griffin‘s Citadel Investment Group reduced its stake in First Solar, Inc. (NASDAQ:FSLR) by 98% to 470,527 shares during the fourth quarter.
#4 International Business Machines Corp. (NYSE:IBM)
– Shares Owned by Scion Asset Management (as of December 31): 50,000
– Value of Holding (as of December 31): $6.88 million
The downtrend that International Business Machines Corp. (NYSE:IBM) embarked up in early-2013 has continued this year, with its shares trading down by 8.4% year-to-date. Though this decline has made shares of the Big Blue extremely cheap, with them currently trading at a forward price-to-earnings multiple of 8.92, most analysts are still not convinced that the stock is a ‘Buy’ yet, though several value investors have been initiating or increasing their stakes in the company over the past few quarters. Analysts argue that the growth in the company’s cloud business and its new strategic initiatives program hasn’t been able to fill in the gap that the decline in its core business has rendered. However, on February 18, analysts at Morgan Stanley upgraded the stock to ‘Overweight’ from ‘Equal Weight’ and also increased their price target on it to $140 from $135.
Mr. Burry’s top three stock picks heading into 2016 are uncovered on the next page.