5 Times Michael Burry’s Market Crash, Other Predictions were Wrong

4. There Cannot be Another Perfect Setup Like GameStop

Source: Twitter, January 2021

Burry also gave his take on the GameStop Corp. (NYSE: GME) rally in January, again using his favorite medium, Twitter, to outline his thoughts on the market. In late January, as GameStop Corp. (NYSE: GME) underwent a short squeeze, Burry predicted that it was a perfect setup and that there would not be another rally like. However, the rally in AMC Entertainment Holdings, Inc. (NYSE: AMC) stock the same month proved Burry wrong. Burry was one of the architects of the GameStop Corp. (NYSE: GME) short squeeze. 

Burry has invested heavily in CVS Health Corporation (NYSE: CVS), the Rhode Island-based healthcare firm. Burry has call options on 400,000 CVS Health Corporation (NYSE: CVS) shares that are worth more than $30 million. 

At the end of the first quarter of 2021, 62 hedge funds in the database of Insider Monkey held stakes worth $1.3 billion in CVS Health Corporation (NYSE: CVS), up from 56 in the preceding quarter worth $961 million. 

In one of its investor letters, VLTAVA Fund highlighted a few stocks and CVS Health Corp (NYSE:CVS) is one of them. Here is what VLTAVA Fund said:

“During the past quarter, we acquired one new position, CVS Health Corporation. It is a relatively large American company with sales around the same level as Apple. CVS is a health care company. To put it simply, its business can be divided into three areas: a retail pharmacies chain, pharmacy benefit management services, and health insurance.

We have been following CVS for a long time. We began monitoring the company more closely in 2018, when CVS acquired the health insurance company Aetna, a direct competitor of Humana, into which we first invested in 2009. We like CVS’s new integrated business model, but, as tends to be the case with such a large acquisition, it often brings with it some problems. In most cases, acquisitions prove to be overpriced and come with large debt and integration issues. We decided to wait and see how things developed. Now, two years later, integration has not caused fundamental problems, the debt has been declining rather quickly, and the cost of the acquisition has long been reflected in the stock price. Today that price is around the same level as it was in 2013 and meanwhile the earnings per share have doubled. We acquired CVS at 7.5 times this year’s earnings and with a double-digit free cash flow return.”