In this article, we examined the 10 best cheap stocks to buy according to Michael Burry that are either trading below 20 times to earnings or have very strong fundamentals.
The famous Big Short investor and Scion Asset Management chief Michael Burry’s prediction about the inflation numbers turned out to be true as reports suggested that daily goods products prices soared sharply in the past couple of months. He had predicted the post-pandemic inflationary pressure last year when the US imposed the first lockdown and the Fed had started easing the monetary policy. The Big Short investor, who is famous for accurately predicting the US housing collapse and making a billion-dollar bet on that, believes the stock market will feel pressure ahead. “When we start working and playing again, inflation may be in store,” he said.
Burry, 49, not only expressed concerns over the rising inflation, which he believes would significantly reduce the value of the dollar, he said early this year that the stock market was “dancing on a knife’s edge” and marked Tesla, GameStop, bitcoin, and Robinhood as examples of dangerous speculation in markets.
“Each $ of earnings today becomes important,” he tweeted on February 23. “Earnings 10 and 20 years from now, the corollary goes, may be worth substantially less tomorrow’s today,” Burry said.
Micheal Burry, who pledged to stop tweeting in mid-March amid regulatory concerns and deleted his Twitter account in April, has one of the best stock-picking skills among hedge fund managers. In one of his recent interviews, he expressed how he predicted the housing collapse:
“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 tens of millions off this. We’re still pretty upset.”
During the first quarter of this year, Michael Burry’s Scion Asset Management made several portfolio adjustments in the light of market trends. He surprised investors with his more than $500 million in a short position on the California-based electric vehicle maker Tesla Inc (NASDAQ: TSLA). Elon Musk’s Tesla Inc (NASDAQ: TSLA)’s stock price has been under pressure over the past few months amid increasing competition, lower than expected delivery growth, and higher multiples. The shares of the largest EV maker owned by billionaire Elon Musk are down close to 30% from its February peak.
Burry, who lost his one eye due to cancer when he was only two years old, is a pure value investor as he likes to capitalize on short-term price movement. This is reflected in his strategy of buying a stake in Wells Fargo Corporation (NYSE: WFC) during the fourth quarter of 2020 and then selling the entire position in the first quarter. Similarly, The Big Short investor sold out his Western Digital (NASDAQ: WDC) position in the first quarter of 2021 after holding the position for two quarters. According to first-quarter 13F filings, Michael Burry initiated positions in 23 stocks and added to 4 existing positions. On the other hand, his hedge fund sold 15 stock positions during the first quarter of 2021.
Some of the stocks in which Burry is bullish on as of the end of the first quarter include CVS Health Corp (NYSE: CVS), Kraft Heinz Co (NASDAQ: KHC), Occidental Petroleum Corporation (NYSE: OXY), Facebook, Inc. Common Stock (NASDAQ: FB) and SunCoke Energy Inc (NYSE: SXC).
The Big Short investor, who believes speculative buying and borrowed money has pushed the stock market into a dangerous position, is betting big on energy stocks. At the end of the first quarter, his hedge fund has raised the energy sector weighting to 29.66% of the overall portfolio compared to 14% in the prior quarter. The main idea behind racking up energy shares is to enjoy the economic recovery period. Burry’s bet moved in the right direction as the energy sector topped the broader market index since the beginning of this year, with a 30.8% return in the first quarter of 2021.
Michael Burry of Scion Asset Management
While Michael Burry’s reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as 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 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 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 16th. 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.
As stated above, Michael Burry is a pure value investor and he likes to buy stocks that are trading at cheap valuations. Let’s start digging into Michael Burry’s top 10 cheap stock picks with a PE ratio of less than 20. We also picked some stocks that look cheap based on the market trends and future fundamentals.
Best Cheap Stocks to Buy According to Michael Burry
10. Scorpio Tankers Inc. (NYSE: STNG)
Burry’s Stake Value: $3,509,000
Percentage of Michael Burry’s 13F Portfolio: 0.25%
Number of Hedge Fund Holders: 20
Scion Asset Management initiated a brand new position in the undervalued Scorpio Tankers (NYSE: STNG) during the first quarter. It is among Michael Burry’s top 10 cheap stock picks because of its PE ratio of 11.43. Following a massive price collapse in 2020, its shares are up close to 100% year to date, driven by economic reopening and easing travel restrictions.
Hedge funds were getting more optimistic. The number of long hedge fund positions increased by 2 in recent months. Scorpio Tankers (NYSE: STNG) was in 20 hedge fund portfolios at the end of March compared to 18 positions in the previous quarter. The all-time high for this statistic is 33.
Like Precision Drilling Corporation (NYSE: PDS), CVS Health Corp (NYSE: CVS), Kraft Heinz Co (NASDAQ: KHC), Facebook, Inc. Common Stock (NASDAQ: FB) and SunCoke Energy Inc (NYSE: SXC), Scorpio Tankers (NYSE: STNG) is one of the most notable stocks in Burry’s Q1 portfolio.
9. Genco Shipping & Trading Limited (NYSE: GNK)
Burry’s Stake Value: $3,575,000
Percentage of Michael Burry’s 13F Portfolio: 0.26%
Number of Hedge Fund Holders: 22
Michael Burry’s strategy of initiating a position in ocean transportation company Genco Shipping & Trading Limited (NYSE: GNK) contributed to the overall returns. This is because shares of Genco Shipping & Trading Limited (NYSE: GNK) rallied almost 18% in the last month alone, extending the year-to-date gains to 126%. Scion Asset Management bought 354711 shares of Genco Shipping & Trading Limited (NYSE: GNK) valued at $3.5 million, according to the latest filings.
Investors are bullish about Genco Shipping & Trading Limited (NYSE: GNK). The number of long hedge fund positions went up by 7 recently. Genco Shipping was in 22 hedge funds’ portfolios at the end of March compared to 15 positions in the prior quarter.
8. Precision Drilling Corporation (NYSE: PDS)
Burry’s Stake Value: $4,813,000
Percentage of Michael Burry’s 13F Portfolio: 0.35%
Number of Hedge Fund Holders: 6
The Big Short investor also bought a stake in Precision Drilling Corporation (NYSE: PDS) during the first quarter as drilling companies are likely to enjoy double-digit growth spending from energy producers in 2021. Scion Asset Management bought 222,706 shares of Precision Drilling Corporation (NYSE: PDS) during the first quarter. The firm’s investment appears to be moving in the right direction because shares of Precision Drilling Corporation (NYSE: PDS) soared close to 138% year to date.
The number of long hedge fund positions remained flat. Precision Drilling Corp was in 6 hedge funds’ portfolios at the end of March compared to 6 positions in the prior quarter. The all-time high for this statistic is 16.
Like Scorpio Tankers (NYSE: STNG), CVS Health Corp (NYSE: CVS), Kraft Heinz Co (NASDAQ: KHC), Occidental Petroleum Corporation (NYSE: OXY), Facebook, Inc. Common Stock (NASDAQ: FB) and SunCoke Energy Inc (NYSE: SXC), Precision Drilling Corporation (NYSE: PDS) is one of the most notable stocks in Burry’s Q1 portfolio.
7. Helmerich & Payne, Inc. (NYSE: HP)
Burry’s Stake Value: $5,392,000
Percentage of Michael Burry’s 13F Portfolio: 0.39%
Number of Hedge Fund Holders: 21
The oil gas drilling company Helmerich & Payne, Inc. (NYSE: HP) is on the list of Michael Burry’s top 10 cheap stock picks amid an exceptional growth cycle in the energy sector. Its stock price grew 43% so far in 2021, with further upside potential amid improving demand for drilling activities. Helmerich & Payne, Inc. (NYSE: HP) expects a sharp growth in revenues during the second half of the year as E&P companies are preparing to ramp up their growth plans.
Prominent investors were turning more bullish. The number of bullish hedge fund positions in Helmerich & Payne, Inc. (NYSE: HP) increased by 2 in recent months. Helmerich & Payne was in 21 hedge funds’ portfolios at the end of March compared to 19 positions in the previous quarter. The all-time high for this statistic is 33.
Like Precision Drilling Corporation (NYSE: PDS), Scorpio Tankers (NYSE: STNG), CVS Health Corp (NYSE: CVS), Kraft Heinz Co (NASDAQ: KHC), Occidental Petroleum Corporation (NYSE: OXY), Facebook, Inc. Common Stock (NASDAQ: FB) and SunCoke Energy Inc (NYSE: SXC), Helmerich & Payne, Inc. (NYSE: HP) is one of the most notable stocks in Burry’s Q1 portfolio.
6. Occidental Petroleum (NYSE: OXY)
Burry’s Stake Value: $5,990,000
Percentage of Michael Burry’s 13F Portfolio: 0.44%
Number of Hedge Fund Holders: 52
The oil exploration & production company Occidental Petroleum (NYSE: OXY) is on the list of Michael Burry’s top 10 cheap stock picks. Although its shares are trading slightly above the 20 PE threshold, Occidental Petroleum (NYSE: OXY) looks undervalued based on the strong oil price outlook. The Big Short investor initiated a position in Occidental Petroleum during the first quarter by purchasing 225000 shares valued at around $5.99 million. Occidental Petroleum (NYSE: OXY) stock price is up 63% since the beginning of this year.
The number of long hedge fund positions went up by 3 recently. Occidental Petroleum Corporation was in 52 hedge funds’ portfolios at the end of March compared to 49 positions in the prior quarter. The all-time high for this statistic is 62.
Like Precision Drilling Corporation (NYSE: PDS), Scorpio Tankers (NYSE: STNG), CVS Health Corp (NYSE: CVS), Kraft Heinz Co (NASDAQ: KHC), Facebook, Inc. Common Stock (NASDAQ: FB) and SunCoke Energy Inc (NYSE: SXC), Occidental Petroleum (NYSE: OXY) is one of the most notable stocks in Burry’s Q1 portfolio.
5. RPT Realty (NYSE: RPT)
Burry’s Stake Value: $6,846,000
Percentage of Michael Burry’s 13F Portfolio: 0.5%
Number of Hedge Fund Holders: 8
The shares of the real estate investment trust RPT Realty (NYSE: RPT) saw a whopping price rally of 58% since the beginning of this year. Michael Burry first initiated a position in the real estate investment trust during the September quarter when its shares were under pressure. However, economic reopening and vaccine rollout provided significant support to RPT Realty’s stock price in the past two quarters.
RPT Realty saw a decrease in hedge fund sentiment recently. The number of long hedge fund positions declined to 8 at the end of the first quarter compared to 9 positions in the previous quarter.
4. CVS Health Corporation (NYSE: CVS)
Burry’s Stake Value: $8,275,000
Percentage of Michael Burry’s 13F Portfolio: 0.61%
Number of Hedge Fund Holders: 62
The health care services company CVS Health Corporation (NYSE: CVS) is the newcomer in the Scion Asset Management portfolio. With a price-to-earnings ratio of 15, CVS is among Michael Burry’s top 10 cheap stock picks. During the first quarter, Scion bought 110,000 shares of CVS valued at around 8.27 million. The Big Short’s bet moved in the right direction in the case of CVS. The company’s stock price is up 23% year to date and shares grew 14% in the last three months.
ClearBridge Investments, an investment management firm, highlighted a few stocks including CVS Health Corporation in the first quarter investor letter. Here is what ClearBridge Investments stated:
“Our underweights in health care and staples contributed to relative performance during the period. As we continue to focus the portfolio on high-conviction ideas, we sold CVS in the first quarter, in the health care sector.”
3. Lumen Technologies Inc. (NYSE: LUMN)
Burry’s Stake Value: $8,678,000
Percentage of Michael Burry’s 13F Portfolio: 0.64%
Number of Hedge Fund Holders: 32
A facilities-based technology and communications company Lumen Technologies Inc. (NYSE: LUMN) is among Michael Burry’s top 10 cheap stock picks. His hedge fund first initiated a position in LUMN during the September quarter of 2020 and sold out 46% of the stake in the first quarter of 2021 to capitalize on the share price rally. Despite that, Scion Asset Management held 650,000 shares of Lumen Technologies at the end of the first quarter. The valuations of the technology and communications company suggest that the stock has further upside potential in the days ahead. Its shares are trading around only 9 times to earnings.
Longleaf Partners Fund, a Memphis-based fund under Southeastern Asset Management, mentioned a few stocks including Lumen Technologies in the first quarter investor letter. Here is what Longleaf Partners Fund stated:
“Lumen (40%, 3.33%), the global fiber company, was the top contributor. While COVID fallout still weighed on fourth quarter results, the company benefited from positive business mix improvements. Early in the quarter, Lumen appreciated 38% in a few short days amidst the “GameStop / Reddit” short cover phenomenon. After this short term bounce, Lumen’s stock price appreciated more steadily over the last six weeks of the quarter with improved results. Many of last year’s worst-case fears have not materialized and the outlook is improving for the core business. We continue to believe that the company has multiple ways within its control to both grow and realize value per share, and we have a 13D filed to allow us to discuss these options with the company. Lumen’s board, which includes Southeastern-nominated Chairman Mike Glenn from FedEx and Director Hal Jones from Graham Holdings, is doing good work to realize Lumen’s hidden value and return the business to FCF/share growth. Despite its appreciation, the stock trades at less than half of our appraisal.”
2. Ingles Markets, Incorporated (NASDAQ: IMKTA)
Burry’s Stake Value: $9,248,000
Percentage of Michael Burry’s 13F Portfolio: 0.68%
Number of Hedge Fund Holders: 16
Scion Asset Management chief Michael Burry added significantly to his Ingles Markets, Incorporated (NASDAQ: IMKTA) position during the first quarter of 2021. The firm first initiated a position in consumer staples company in the December quarter last year. Although stock price soared almost 45% since the beginning of this year, low valuations hint further upside is ahead. Ingles Markets stock is trading around 5.6 times to earnings in the trailing twelve months while its price to book ratio is hovering just over 1.40. In addition to the share price upside potential, the company also offers a dividend yield of 1.06%.
Ingles Markets, Incorporated shares have seen a lot of action during the first quarter. Overall, hedge fund sentiment declined. The number of long hedge fund positions declined to 16 at the end of the first quarter compared to 20 positions in the prior quarter.
1. CoreCivic, Inc. (NYSE: CXW)
Burry’s Stake Value: $9,955,000
Percentage of Michael Burry’s 13F Portfolio: 0.73%
Number of Hedge Fund Holders: 18
The real estate investment trust CoreCivic, Inc. (NYSE: CXW) continues gaining Michael Burry’s confidence. After initiating a position in the fourth quarter of 2020, Scion Asset Management raised its stake in the real estate investment trust by 10% to 1.1 million shares, accounting for 0.74% of the entire portfolio. Shares of CoreCivic rallied almost 73% since the beginning of this year. Despite that, its shares are still looking cheap based on a price-to-earnings ratio of 18.
Corecivic was in 18 hedge funds’ portfolios at the end of the March quarter, flat compared to the previous quarter. The all-time high for this statistic is 27.
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