In this article we take an in-depth look at why Michael Burry is Betting Everything on These 6 Stocks.
The GEO Group, Inc. (NYSE:GEO), Qurate Retail, Inc. (NASDAQ:QRTEA), and CoreCivic, Inc. (NYSE:CXW) are three of the core stock picks of Michael Burry, the famed value investor who was one of the few money managers prescient enough to foresee the 2008 housing collapse and bold enough to bet everything on it happening. Now, he’s betting it all on just six stocks, which make up the entire 13F portfolio of his hedge fund Scion Asset Management.
Burry launched the multi-strategy hedge fund Scion Asset Management in 2013, a few years after closing his former fund Scion Capital following the subprime mortgage crisis. Scion Capital was one of the best performing funds of the 2000’s, delivering 489% returns net of fees in just over seven and a half years of operation.
That performance, alongside his resulting fame following the release of the Michael Lewis book and subsequent movie ‘The Big Short’, has made Burry one of the most recognizable and sought after investors in the world to piggyback. Burry didn’t give investors much to consider in Q2, as he liquidated virtually all of Scion Asset’s 13F portfolio, holding onto just one stock, The GEO Group, Inc..
At the time, Burry warned investors that the market was experiencing the “greatest speculative bubble of all time in all things”, and that the “mother of all crashes” was coming for meme stock and cryptocurrency investors in particular. Bitcoin has continued to trend down throughout 2022, losing 63% of its value in a pattern that Burry likens to past crashes in 2000 and 2008.
Among the stocks Burry unloaded during Q2 were Bristol-Myers Squibb Company (NYSE:BMY), Warner Bros. Discovery, Inc. (NASDAQ:WBD), and Booking Holdings Inc. (NASDAQ:BKNG), the latter two of which had just been added during Q1.
Bristol-Myers Squibb Company represented the lone holdover from Q4 2021 during the first quarter of this year, as Burry completely remade his portfolio, but even it couldn’t survive the purge of Q2, as Burry sold off all 300,000 of Scion Asset Management’s BMY shares. The position appears to have been a profitable one for Burry, as BMY shares rose by 24% during the first half of this year.
Burry also sold off all 750,000 shares of Warner Bros. Discovery, Inc. that his fund had just purchased a quarter earlier. WBD shares have sank throughout 2022, losing 55% of their value this year. David Einhorn’s Greenlight Capital sold off its stake in WBD in Q3, noting the company’s sizable debt load and the difficult transition that lies ahead of it as it embarks upon the integration of HBO Max and Discovery+ into a unified streaming platform. Numerous other hedge funds appear to be waiting out the bottom, as the number of funds long WBD has risen slightly in each of the last two quarters.
Burry also unloaded his 8,000-share stake in online travel platform Booking Holdings Inc. during Q2 a quarter after purchasing it. BKNG shares traded in a wide range during Q1, so it’s possible Burry made a tidy profit from the position, lost a hefty chunk of change, or anything in between. Booking Holdings is well off its all-time highs in terms of smart money ownership but remains one of the 30 most popular stocks among hedge funds.
Michael Burry has become at least slightly more bullish on the market in the second half of this year, or at least a handful of mostly beaten-down stocks in it, adding five new holdings to his fund’s portfolio during Q3. If there’s any doubt that Burry’s stock picks have the power to move the markets, their performance on November 14, when his fund’s latest 13F filing was released, should remove any doubt. Four of the six stocks in his portfolio posted at least 2% gains during the day, and many of them pushed towards 5% gains in after-hours trading. Only one of his stock picks declined in value, that being the large-cap stock Charter Communications, Inc. (NASDAQ:CHTR).
Scion Asset Management’s 13F portfolio jumped to $41.3 million in value as of September 30, up from a mere $3.31 million at the end of June. That’s still substantially lower than the end of Q1, when it was valued at over $201 million. Scion’s portfolio swelled to over $2 billion in value in the middle of 2021, though it was dominated by options positions, including a large short bet against Tesla, Inc. (NASDAQ:TSLA).
Now then, let’s dig into Michael Burry’s current portfolio and try to uncover what may have prompted him to purchase these stocks amid a broader backdrop that he likely still views as relatively dire.
Michael Burry of Scion Asset Management
Our Methodology
The following data is gathered from Scion Asset Management’s latest 13F filing with the SEC for the reporting period of September 30, 2022. We follow hedge funds like Scion Asset Management because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns.
All hedge fund data is based on the exclusive group of 900+ funds tracked by Insider Monkey that filed 13Fs for the Q3 2022 reporting period.
Michael Burry is Betting Everything on These 6 Stocks
6. Liberty Latin America Ltd. (NASDAQ:LILA)
Value of Scion Asset Management‘s 13F Position: $958,000
Number of Hedge Fund Shareholders: 44
CoreCivic, Inc., The GEO Group, Inc., and Qurate Retail, Inc. are three of Michael Burry’s favorite stocks, two of which he added to his fund’s portfolio during Q3. Another company that was added to Scion’s 13F portfolio during the quarter was telecommunications provider Liberty Latin America Ltd. (NASDAQ:LILA). Scion bought 155,761 LILA shares during the quarter, taking a small stake in the company which represented 2.31% of its 13F portfolio’s value.
Hedge fund ownership of Liberty Latin America Ltd. peaked during the first quarter of this year, as multiple funds appear to have been intrigued by the value proposition of the stock, which had fallen by 31% during the prior two years. LILA shares have continued to trend down this year however, hitting a 52-week low earlier this month, prompting several hedge funds to cut their losses, as there’s been a 21% drop in the number of funds long LILA over the last two quarters. Ken Griffin’s Citadel Investment also opened a small stake in Liberty Latin America during Q3.
It’s not hard to see why investors have been souring on Liberty Latin America Ltd.. The company is saddled with $9.4 billion in debt and isn’t profitable, losing $1.89 per share last year. And after strong sales growth of about 27% last year, revenue has remained relatively flat in 2022. The strong U.S. dollar also isn’t doing the company any favors. Yet it does have some things going for it, namely a solid core free cash flow yield of around 18%, which could grow further as the company continues to shift towards its higher margin segments.
For its part, Steel City Capital is baffled as to why Liberty Latin America Ltd. shares have underperformed the market to the degree that they have this year, as the fund discussed in its Q3 2022 investor letter:
“Liberty Latin America Ltd. has been a dog this year, declining nearly 45% through the end of the third quarter. The business is highly predictable so there haven’t been any surprises on the operational front, and virtually of its floating-rate debt has been swapped, thereby protecting it from this year’s rapid rise in interest rates. So I’m not quite sure why it has underperformed the broader market so significantly. This year’s free cash flow guide is for $120 million (ex. SBC) and there’s a line-of-sight to $300+ million (ex. SBC) by 2024, meaning shares have been trading in a range of 4-6x price to free cash flow. The Partnership has been a buyer at these levels.”
5. Charter Communications, Inc. (NASDAQ:CHTR)
Value of Scion Asset Management‘s 13F Position: $3.03 million
Number of Hedge Fund Shareholders: 69
Michael Burry bought an even 10,000 shares of Charter Communications, Inc. during Q3, making it the second telecommunications stock that the famed money manager invested in during the quarter. Charter shares have slumped by 40% this year and by 52% from their peak reached in August 2021, which is consistent with the price action of most of Burry’s beaten-down stock picks.
Charter Communications, Inc. clearly thinks its own shares are severely undervalued, as the broadband and cable provider continues to load up on debt as a means of buying back shares. The company has bought back over 46% of its shares since 2016, but its debt load has ballooned to nearly $100 billion in the process, which has investors understandably wary as interest rates rise. The good news is that Charter has become considerably more profitable in recent years, growing its EPS from just $5.29 in 2018 to $25.34 last year, while its EBIT has more than doubled during that time to $12.1 billion.
There was also a notable case of insider buying of CHTR shares earlier this month when board member Eric Louis Zinterhofer purchased 27,202 shares, his first insider purchase in 13 years as a member of Charter’s board.
Among the select group of hedge funds tracked by Insider Monkey’s database, there was a slight decrease in the number of funds long Charter Communications, Inc. for the fourth straight quarter during Q3. Ownership of the stock has dipped by 15% during that time and sits well off its highs reached in 2016. Warren Buffett’s Berkshire Hathaway maintained a large position in CHTR during Q3, ending the quarter with just under 3.83 million shares.
Oakmark Funds believes the market is being overly punishing to Charter Communications, Inc. shares and laid out the reasons why in its Q3 2022 investor letter:
“Charter Communications, Inc. is also trading like a bank stock due to concerns about broadband subscriber growth and competition. With the stock trading for a high-single-digit P/E on next year’s consensus earnings forecasts, we believe the market’s assumptions are overly punitive. Charter remains the dominant broadband provider in 60% of its footprint, and we expect continued operating profit growth even in a tougher competitive and macro environment.”
4. Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD)
Value of Scion Asset Management‘s 13F Position: $5.3 million
Number of Hedge Fund Shareholders: 26
Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD) closes out the first half of the list, with Michael Burry’s hedge fund adding 132,561 shares of the company to Scion Asset’s 13F portfolio during Q3. The new holding accounted for 12.8% of the fund’s 13F portfolio value as of September 30. The stock appears to be a winner so far for Burry, as it’s gained 22.8% since the end of Q3.
Aerojet Rocketdyne Holdings, Inc. has registered relatively tepid sales and earnings growth over the last few years, growing sales by just 16% during the trailing twelve month period compared to 2018 revenue. Even worse, gross profit and net income have actually declined during that nearly 4-year period. In the third quarter, Aerojet’s sales were $550 million, slightly missing estimates, while its adjusted EPS of $0.45 topped consensus by a penny.
The rocket engine developer does have somewhat of an ace up its sleeve when it comes to its longer-term growth forecast in the form of Amazon and United Launch Alliance’s plans to conduct 47 space launches over the coming five or so years, which prompted the Alliance to order 116 RL10C-X Aerojet rocket engines. All else being equal, that projects to boost Aerojet’s revenue by about 20% annually over the five-year period and its profits by slightly more than that.
The broader hedge fund community has also been bailing on Aerojet Rocketdyne Holdings, Inc. in recent quarters. There’s been a 26% drop in the number of funds long AJRD over the last year, though that’s undoubtedly due in part to the failed acquisition attempt by Lockheed Martin Corporation (NYSE:LMT) (which is part of the aforementioned Alliance), which was scuttled early in 2022. Lee Ainslie’s Maverick Capital and Steven Boyd’s Armistice Capital are a couple of noteworthy funds that have unloaded their Aerojet Rocketdyne holdings in recent quarters.
Micheal Burry is more bullish on Qurate Retail, Inc., CoreCivic, Inc., and The GEO Group, Inc. than any other stocks on the market. Find out why by clicking the click below.
3. CoreCivic, Inc. (NYSE:CXW)
Value of Scion Asset Management‘s 13F Position: $6.41 million
Number of Hedge Fund Shareholders: 16
CoreCivic, Inc. makes its return to Michael Burry’s 13F portfolio six months after he unloaded his former position in the company. CXW was added to Scion Asset’s portfolio during the fourth quarter of 2020 and become the fund’s largest non-options position in the first quarter of last year, though it nonetheless represented only a small slice of that portfolio’s value. The holding now accounts for 15.5% of Scion’s 13F portfolio value.
CoreCivic, Inc. is the first of two prison operators that Burry is bullish on, which combined account for more than 50% of the value of his fund’s 13F portfolio. The company’s revenue is on pace to decline for the third straight year, while its gross profit and operating income are likely to decline this year compared to last. The company has seen a significant positive swing in its net income this year however.
In August, CoreCivic was forced to slash its FY22 adjusted EPS guidance, citing a delay in the reversal of Title 42, which was likely to increase the number of asylum seekers being detained by ICE, the company’s largest government customer.
Hedge fund ownership of CoreCivic, Inc. was as volatile as the company’s share price between 2015 and 2020, but has since stabilized after CXW shares bottomed out during the final quarter of 2020. They’ve gained 84% since, including being one of the rare stocks to post gains in 2022, being up by 8.88%. Ken Griffin’s Citadel Investment more than doubled its stake in CoreCivic during Q3 to 1.56 million shares.
2. Qurate Retail, Inc. (NASDAQ:QRTEA)
Value of Scion Asset Management‘s 13F Position: $10.1 million
Number of Hedge Fund Shareholders: 24
Michael Burry added an even 5 million shares of Qurate Retail, Inc. to his fund’s 13F portfolio during Q3, with the position accounting for nearly a quarter of that portfolio’s value as of September 30. This isn’t the first time Qurate has appeared in Burry’s portfolio, though never so prominently. He bought 1.1 million shares of the company in the third quarter of 2020, but unloaded the position over the next two quarters.
Qurate Retail, Inc. is another Michael Burry stock pick that’s been heavily beaten down in recent years, as shares of the company have cratered by 93% since March 2018. Qurate manages several brands, including TV and web retailers QVC and HSN, which are jointly dubbed QxH. Those retailers have been faltering heavily over the last 12 months, losing 16.8% of their total customers year-over-year. Bank of America analyst Jason Haas believes it will be hard for the companies to win back those customers, which prompted a downgrade to ‘Underperform’ from ‘Neutral’ and a big price cut to $1.20 from $4.00 earlier this month.
Hedge fund ownership of QRTEA made a small jump in the early days of the pandemic, but has gradually fallen in the quarters since and hit an all-time low during Q3. Many of the stock’s bulls were buying more shares of the company during Q3 however, including several major quant funds like Jim Simons’ Renaissance Technologies and John Overdeck and David Siegel’s Two Sigma Advisors.
Wallace Weitz’s Weitz Investment Partners III Opportunity Fund shared its take on Qurate Retail, Inc. in its Q2 2022 investor letter:
“As we describe in our latest “Value Matters,” we believe these are characteristics that allow companies to “make their own breaks,” regardless of the near-term challenges we may face. During the quarter, we sold our remaining shares of Qurate Retail‘s (NASDAQ:QRTEA) common equity but maintain a position in the company’s 8% preferred shares.”
1. The GEO Group, Inc. (NYSE:GEO)
Value of Scion Asset Management‘s 13F Position: $15.5 million
Number of Hedge Fund Shareholders: 19
The GEO Group, Inc. is the only holdover from Michael Burry’s Q2 13F portfolio and it remains his top stock pick heading into the final quarter of 2022. After building a new 501,360-share position in the company during Q2, Burry quadrupled his stake during Q3, ending the quarter with 2.02 million shares.
If Burry was banking on The GEO Group, Inc. (and CoreCivic for that matter) benefiting from a potential red wave overtaking the senate and possibly leading to tougher crime legislation being enacted, those hopes have been dashed. Without that potential catalyst, he’s left holding a stock that looks cheap by some metrics (7x forward P/E), but which doesn’t otherwise have much momentum going for it. GEO’s revenue will inch up this year but remain beneath 2019 levels, while the company’s net income is less than half what it was three years ago.
The GEO Group, Inc. is another Michael Burry stock that’s been crushed in recent years, but which appears to have finally stabilized. Whether it can actually rally to a higher level any time soon remains to be seen. There’s been a slow uptick in hedge fund ownership of the stock in recent quarters, with Cliff Asness’ AQR Capital Management and Paul Tudor Jones’ Tudor Investment Corp among the buyers.
For more of the latest stock picks worth considering for your portfolio, check out 12 Best Depressed Stocks To Buy and 10 Cheap Monthly Dividend Stocks To Buy.
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This article is originally published at Insider Monkey.
