Michael Burry of The Big Short Likes Apple, Bearish on Banks

Scion Asset Management, the second hedge fund founded by Dr. Michael Burry of ‘Big Short’ fame, made its US equity portfolio highly concentrated with very limited exposure to the financial sector heading into the second quarter. This information was uncovered from the fund’s latest 13F filing submitted with the Securities and Exchange Commission (SEC).  According to the filing, Scion’s US equity portfolio at the end of March was worth $51.1 million and consisted of long positions in only eight stocks. In comparison, Scion’s US equity portfolio was worth nearly $80 million and consisted of long positions in 14 stocks at the end of 2015. The filing also revealed that whereas the fund sold its entire stake in nine stocks and reduced its holding in two stocks during the first quarter, it made additional purchases in only one stocks and initiated a stake in only three stocks during that period. The most interesting information that came out of Scion’s latest 13F filing was that Dr. Burry suddenly became extremely bearish on banking stocks during the first quarter, selling all of Scion’s holdings in them during that period.  In this post, we will take a look at four well-known companies in which Scion sold its entire stake during the first quarter and will also discuss its top holding going into the second quarter.

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Three closed positions in Banking Stocks

Bank of New York Mellon Corp (NYSE:BK)

Let’s start with Bank of New York Mellon Corp (NYSE:BK), in which Scion held 100,000 shares at the end of 2015, but dumped the position during the first quarter. Relative to the performance of other banking stocks, the stock of New York Mellon Corp (NYSE:BK) performed rather well during the first quarter by losing only 10% of its value during that period. Moreover, it is also amongst the few stocks in the banking sector, which have managed to recover from the first quarter beating and currently trades flat for 2016. A large part of the gains that the stock has seen in the current quarter came in anticipation of the bank’s first quarter results. Since the EPS of $0.74 on revenue of $3.74 billion that the bank reported for the quarter were slightly better than analysts’ estimate of EPS of $0.68 on revenue of $3.74 billion, Bank of New York Mellon Corp (NYSE:BK)’s stock has so far managed to hold on to the gains it made prior to the bank’s earnings announcement. On May 11, analysts at Credit Suisse reiterated their ‘Hold’ rating on the stock. Nelson Peltz‘s Trian Partners, whose co-founder Ed Garden is part of the bank’s Board, inched up its stake in Bank of New York Mellon Corp by 3% to 31.283 million shares during the first quarter.

Bank of America Corp (NYSE:BAC)

Moving on, Bank of America Corp (NYSE:BAC) experienced a major victory against the U.S. Justice Department on May 23, when the U.S. appeals court threw out a $1.27 billion verdict against it in a fraud case over Countrywide’s “Hustle” mortgage program, saying that the proof at the trial was insufficient to establish liability. However, this news hasn’t had any positive impact on the stock till now as it continues to trade down 15% year-to-date. Bank of America Corp (NYSE:BAC) currently pays a quarterly dividend $0.05 per share, which based on its current stock price translates into an annual dividend yield 1.38%. On May 16, analysts at Keefe, Bruyette & Woods downgraded the stock to ‘Market Perform’ from ‘Outperform’ and also lowered their price target on the stock to $16 from $17. Hedge funds that increased their stake in the bank during the first quarter included Shane Finemore‘s Manikay Partners, which brought its holding up by 34% to 8 million shares.

Citigroup Inc (NYSE:C)

Citigroup Inc (NYSE:C) was Scion Asset Management’s top equity holding from the banking sector heading into 2016 with the fund owning 100,000 shares of the bank worth $5.17 million at the end of December. Like the stocks of most major banks, Citigroup Inc (NYSE:C)’s stock also suffered a huge decline during the first quarter and ended the quarter down by nearly 20%. However, it has recouped some of those gains this quarter and currently trades down 13.8% year-to-date. For its fiscal 2016 first quarter Citigroup Inc (NYSE:C) reported EPS of $1.10 on revenue of $17.60 billion, compared to EPS of $1.52 on revenue of $19.70 billion it had reported for the same quarter of the previous financial year. The stock currently sports an average rating of ‘Overweight’ and an average price target of $56.54 from the 30 leading analysts who track it. Martin Hughes‘ Toscafund Asset Management reduced its stake in the bank by 43% to 1.17 million shares during the first quarter.

International Business Machines Corp. (NYSE:IBM)

International Business Machines Corp. (NYSE:IBM) is the only stock covered in this article which ended the first quarter with gains. Though it has given up some of those gains in the present quarter, it is still trading 10% in the green year-to-date. Due to the gains the stock has made so far in 2016, several analysts believe that the bear run the stock went through starting in 2013 has now ended. Their bullishness also stems from the fact that the ‘strategic imperatives’ in which International Business Machines Corp. (NYSE:IBM) has been investing for the past few quarters have started showing results, and that the new products from the company like its cloud analytics platform, Watson, have been gaining a lot of traction. In the last few weeks, the company has laid off a large number of its employees as part of its efforts ‘to retool for cloud services and data analysis’. On May 17, analysts at Morgan Stanley reiterated their ‘Buy’ rating and $168 price target on the stock. Canadian billionaire Prem Watsa‘s Fairfax Holdings didn’t make any changes to its stake in International Business Machines Corp. during the first quarter and continued to own 1.36 million shares of the company at the end of that period.

Largest Equity Holding

Apple Inc. (NASDAQ:AAPL)

– Shares Owned by Scion Asset Management (as of March 31): 75,000

– Value of Holding (as of March 31): $8.17 million

With Scion Asset Management keeping its stake in the company unchanged during the first quarter, Apple Inc. (NASDAQ:AAPL) continued to remain the fund’s largest equity holding at the end of March. Shares of Apple Inc. (NASDAQ:AAPL) ended the first quarter with gains of over 4%, however, they have given up those gains and more this quarter, following the company’s first-quarter earnings release and are currently trading down by 5% year-to-date. While some analysts believe that the downfall in Apple Inc. (NASDAQ:AAPL)’s stock since the past many months is a direct result of CEO Tim Cook’s mismanagement in not allocating a significant chunk of its profits towards R&D, others argue that this mismanagement happened prior to Mr. Cook assuming the role of the company’s CEO and that he had brought back R&D spending (as a percentage of its revenue) to its historical average. The company recently made a $1 billion investment in Chinese ride sharing service company Didi Chuxing. Billionaire Warren Buffett‘s Berkshire Hathaway initiated a stake in Apple during the first quarter by purchasing 9.8 million shares of the company.

Disclosure: None