“Winter Coming”: Michael Burry Sells These 11 Stocks to Brace for Impact

Published on August 16, 2022 at 9:26 am by Hamna Asim in Hedge Funds, News

In this article, we discuss Michael Burry’s latest warnings about the economic outlook and the 11 stocks he is selling to brace for impact. If you want to read about five prominent stocks he dumped ahead of the economic crisis, click Michael Burry Sells These 5 Stocks to Brace for Impact.

Michael Burry of “The Big Short” fame has been warning investors of a stock market bloodbath for quite some time now. Burry, who manages his personal capital via his hedge fund, Scion Asset Management, has been extremely bearish on the equity market, predicting a crash akin to the 2008 mortgage crisis. On August 12, Burry tweeted that consumer credit is increasing dramatically, and excess consumer spending paired with the current inflation could hurt the market further. He observed that the higher spending is a result of stimulus checks received during the peak of the COVID-19 pandemic, and these spending patterns will erode consumer savings.

“Winter Coming”

Michael Burry concluded his August 12 tweet, which has now been deleted, with the phrase “winter coming”. This indicates Burry’s apprehension about Americans over exceeding their spending budget while inflation continues to hammer the economy. He firmly believes that the rally in stock market indexes from their June lows is not an indication of the bull market returning. He also called the Nasdaq’s 23% gain a “bear market rally”. He further elaborated that there were 26 bear market rallies from 1929 to 1932 and 2000 to 2002, and the average gains during these rallies came in at 23%, much like the present scenario. Michael Burry’s “winter coming” warning is likely a nod to the popular TV series, Game of Thrones. The latest warning from Burry came just a week after he criticized the “silliness” in the stock market, pointing towards the meme frenzy around the Hong Kong-based AMTD Digital Inc. (NYSE:HKD).

In a dramatic bearish display, Michael Burry dumped all but one stock from his portfolio in the second quarter of 2022. He now has $3.3 million invested in The GEO Group, Inc. (NYSE:GEO), a small-cap firm that invests in private prisons and mental health facilities. GEO is a new arrival in his Q2 portfolio. Among the most notable names dumped by Burry include Booking Holdings Inc. (NASDAQ:BKNG), Alphabet Inc. (NASDAQ:GOOG), and Meta Platforms, Inc. (NASDAQ:META).

"Winter Coming": Michael Burry Sells These 11 Stocks to Brace for Impact

Michael Burry of Scion Asset Management

Our Methodology

We used the Q2 2022 portfolio of Michael Burry’s Scion Asset Management for this analysis. The stocks he dumped in the second quarter are arranged according to the hedge fund sentiment that surrounds them. The hedge fund sentiment was assessed from Insider Monkey’s Q1 2022 database of 900+ elite hedge funds.

Michael Burry Sold These 11 Stocks in Q2

11. Warner Bros. Discovery, Inc. (NASDAQ:WBD)

Number of Hedge Fund Holders: N/A

Warner Bros. Discovery, Inc. (NASDAQ:WBD) is a New York-based media company. Michael Burry’s Scion Asset Management added Warner Bros. Discovery, Inc. (NASDAQ:WBD) to its portfolio in Q2 2021, but sold the stock in the next quarter. Burry’s hedge fund invested in the company again in Q1 2022, purchasing 750,000 shares worth $18.7 million. The fund dumped Warner Bros. Discovery, Inc. (NASDAQ:WBD) in Q2 2022 yet again.

Barrington analyst James Goss downgraded Warner Bros. Discovery, Inc. (NASDAQ:WBD) on August 8 to Market Perform from Outperform without a price target. The analyst believes Warner Bros. Discovery, Inc. (NASDAQ:WBD) has a “major challenge in blending services that range as broadly as Discovery unscripted through HBO super premium”. Record losses are forecasted in 2022, with the U.S. profitable in 2024 and global profitability in 2025, added the analyst.

Among the hedge funds tracked by Insider Monkey, Benjamin A. Smith’s Laurion Capital Management is the leading position holder in Warner Bros. Discovery, Inc. (NASDAQ:WBD) as of Q1 2022, with 13.5 million shares worth $338.4 million.

Here is what Silver Ring Value Partners has to say about Warner Bros. Discovery, Inc. (NASDAQ:WBD) in its Q1 2022 investor letter:

“Discovery completed the acquisition of the Warner Media business from AT&T in April, and the combined business is now named Warner Brothers Discovery. We are currently in the middle of an interesting technical event, following the spin-off special situation playbook.

The acquisition was structured as a spin-off of Warner Media, with AT&T shareholders receiving ~ 70% of the shares in the combined entity, or ~ 1.7B shares. Many of these shareholders owned AT&T for its phone business and its dividend. It appears that there has been elevated noneconomic selling as these shareholders exit regardless of price. On the other side, few if any investors want to buy the WBD shares prior to this forced selling being over.

This has caused the stock to decline substantially despite being already priced at a low valuation and reporting good recent results. The people selling aren’t likely considering either of those factors, which is what creates the opportunity. One wrinkle as compared to the usual spin-off special situation setup is that the non-economic selling is likely to last for some time given the retail nature of the shareholder base. This is different from the typical pattern where there is a quick sharp sell-off as institutional investors dump their shares quickly following the spin.

In anticipation of this situation, I had sold our equity prior to the major declines, and replaced it with January 2024 call options. I have since been using a portion of the cash generated from the equity sale to add to the option position as the stock price declines. While this does give up some time horizon, which I am usually loathe to do, both the technical selling and the question of the success of the merger integration are likely to be resolved well before then.

If I am correct and this is a much more valuable business than the market is giving it credit for, we will make a hefty profit. If I am wrong, and the combination of financial leverage, merger integration problems and secular risks are more serious than I foresee, we will have a moderate loss. I like our odds and the asymmetry of risk vs. reward.”

10. Sportsman’s Warehouse Holdings, Inc. (NASDAQ:SPWH)

Number of Hedge Fund Holders: 19

Sportsman’s Warehouse Holdings, Inc. (NASDAQ:SPWH) is an outdoor sporting goods retailer in the United States. It offers camping products, outdoor cooking equipment, sportswear, technical gear, and work wear. Michael Burry added Sportsman’s Warehouse Holdings, Inc. (NASDAQ:SPWH) to his portfolio in Q4 2018 and held the stock consistently before selling it in Q1 2020. He added the stock to his holdings in Q1 2022 by purchasing 250,000 shares worth $2.6 million, only to dump the stake in the second quarter of 2022.

On June 1, Craig-Hallum analyst Ryan Sigdahl lowered the price target on Sportsman’s Warehouse Holdings, Inc. (NASDAQ:SPWH) to $15 from $20 and maintained a Buy rating on the shares. The analyst observed that the company posted above consensus Q1 earnings and revenue, offered upbeat outlook on strategic initiatives, and what he believes to be better-than-anticipated Q2 guidance – although it remains fractionally behind sell-side consensus. The consumer backdrop is challenging, and most retailers have revised outlooks downwards. However, the analyst contended that demand for outdoor recreation remains robust and Sportsman’s Warehouse Holdings, Inc. (NASDAQ:SPWH) is gaining market share, and its “everyday value and no frills” model is more defensive in his view than expensive destination retailers.

According to Insider Monkey’s data, 19 hedge funds were bullish on Sportsman’s Warehouse Holdings, Inc. (NASDAQ:SPWH) at the end of Q1 2022, down from 28 funds in the last quarter. Cannell Capital is the leading stakeholder of the company, with 2.6 million shares worth $27.7 million.

Like Booking Holdings Inc. (NASDAQ:BKNG), Alphabet Inc. (NASDAQ:GOOG), and Meta Platforms, Inc. (NASDAQ:META), Michael Burry sold Sportsman’s Warehouse Holdings, Inc. (NASDAQ:SPWH) in Q2 2022.

Here is what Merion Road Capital has to say about Sportsman’s Warehouse Holdings, Inc. (NASDAQ:SPWH) in its Q1 2022 investor letter:

“During the quarter I added to Sportsman’s Warehouse (“SPWH”). SPWH is an outdoor sporting goods retailer with about half of their revenue coming from hunting & shooting products (guns, ammo). I initiated our position back in December following their failed merger with Great Outdoors on the grounds of anti‐trust concerns. It appeared that the stock was being sold off indiscriminately by merger arbitrageurs and valuation seemed attractive, particularly after adjusting for the receipt of a $55mm termination payment and unwind of excess inventory.

While the dust has largely settled from an investor base perspective, SPWH remains attractively priced with a few upcoming catalysts. Fundamentally the company is well positioned. Following the tragic Parkland school shooting two large competitors to SPWH, Dicks Sporting Goods and Walmart, made the decision to exit the category; their absence makes the competitive landscape for SPWH a lot more favorable than in prior years. Furthermore, it is no surprise that gun and ammo sales during covid experienced tremendous growth. Unlike prior cycles, however, this wave saw an increase in new gun buyers rather than purchases by existing owners. SPWH estimates that over the past 18 months the industry created 12mm new firearm owners; using a prior base of 100mm, this implies an increase to their addressable market of 12%. The company is executing on many other internal initiatives including store expansion, omni‐channel growth (e‐comm up to 15% of revenues), loyalty programs (at 3mm members) and new co‐branded credit cards…” (Click here to see the full text)

9. Stellantis N.V. (NYSE:STLA)

Number of Hedge Fund Holders: 29

Stellantis N.V. (NYSE:STLA) is a Netherlands-based company that manufactures automobiles, engines, transmission systems, metallurgical products, and production systems worldwide. Michael Burry bought 600,000 shares of Stellantis N.V. (NYSE:STLA) in the first quarter of 2022, only to dispose of the holding a quarter later. On July 28, Stellantis N.V. (NYSE:STLA) reported a 1H net profit of €7.96 billion, and a revenue of €88 billion, up 17% year over year. The industrial free cash flows stood at €5.3 billion, up €6.5 billion compared to the same period last year. Global BEV sales jumped nearly 50% year over year to 136,000 units.

RBC Capital analyst Tom Narayan raised the price target on Stellantis N.V. (NYSE:STLA) to EUR 21 from EUR 19 and kept a Sector Perform rating on the shares on August 2.

Among the hedge funds tracked by Insider Monkey, Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is the leading stakeholder of Stellantis N.V. (NYSE:STLA) as of Q1 2022, with 50.6 million shares worth $829.5 million. Overall, 29 hedge funds were bullish on Stellantis N.V. (NYSE:STLA) at the end of Q1 2022, up from 23 funds in the prior quarter.

8. Nexstar Media Group, Inc. (NASDAQ:NXST)

Number of Hedge Fund Holders: 39

Nexstar Media Group, Inc. (NASDAQ:NXST) is a Texas-based television broadcasting and digital media company. Michael Burry’s Scion Asset Management bought 76,200 shares of Nexstar Media Group, Inc. (NASDAQ:NXST) in Q1 2022, worth $14.3 million, representing 7.13% of the total holdings. The hedge fund dumped the position entirely in Q2 2022.

Barrington analyst James Gross on August 8 raised the price target on Nexstar Media Group, Inc. (NASDAQ:NXST) to $240 from $215 and reaffirmed an Outperform rating on the shares. The combination of stable retransmission dollars, relatively reduced core advertising, and soaring political dollars created a 10% overall revenue boost in the most recent quarter, the analyst told investors. He said Nexstar Media Group, Inc. (NASDAQ:NXST)’s ad environment is “generally encouraging” and its profitability remains solid.

According to Insider Monkey’s data, Nexstar Media Group, Inc. (NASDAQ:NXST) was part of 39 hedge fund portfolios at the end of Q1 2022, compared to 41 funds in the preceding quarter. Seth Klarman’s Baupost Group is the leading stakeholder of the company, with 1.14 million shares worth $216.3 million.

Here is what Richie Capital Group has to say about Nexstar Media Group, Inc. (NASDAQ:NXST) in its Q1 2022 investor letter:

“Nexstar Media Group (NXST up 24.8%) – The television broadcasting and digital media company surged during the quarter after presenting at an investor conference where management pointed to a strong 2022 for both political advertising and retransmission. They have exposure to more than 80% of markets with competitive mid-term political races. NXST is developing new ad categories such as sports betting and they are focused on expanding digital ad revenue and providing digital solutions to local advertisers. Auto advertising will return in the fall as auto dealerships re-enter the market to sell their replenished inventory.”

7. Ovintiv Inc. (NYSE:OVV)

Number of Hedge Fund Holders: 44

Ovintiv Inc. (NYSE:OVV) is a Colorado-based company that engages in the exploration and production of natural gas, oil, and natural gas liquids. The company operates through USA Operations, Canadian Operations, and Market Optimization segments. Michael Burry first invested in Ovintiv Inc. (NYSE:OVV) in Q2 2021 but sold the position in the next quarter. He again purchased 300,000 shares of the company in Q1 2022, worth $16.2 million, representing 8.05% of the total holdings. Burry discarded his Ovintiv Inc. (NYSE:OVV) stake again in Q2 2022.

On July 19, Truist analyst Neal Dingmann raised the price target on Ovintiv Inc. (NYSE:OVV) to $77 from $72 and kept a Buy rating on the shares. The recent downturn in commodities has taken a toll on the E&P group, but the tailwind “breeze remains brisk” as oil prices are at levels not seen since 2014 and up nearly 40% year-to-date, even though many oil names are roughly flat or down, the analyst told investors in a research note.

Among the hedge funds tracked by Insider Monkey, 44 funds were long Ovintiv Inc. (NYSE:OVV) at the end of March 2022, with collective stakes exceeding $2 billion. Paul Marshall and Ian Wace’s Marshall Wace LLP is the leading position holder in the company as of Q1 2022, with 4.8 million shares valued at $263.3 million.

Here is what Miller Value Partners Opportunity Equity has to say about Ovintiv Inc. (NYSE:OVV) in its Q4 2021 investor letter:

“The outlook for high multiple favorites depends to a great degree on interest rates. Warren Buffett likened interest rates to the force of gravity for asset prices. At current low levels, high valuations on long-duration assets can be justified. If interest rates move up, the adjustment will be painful. Market action early in the new year, with the swift moves up in interest rates and down in the Nasdaq, offers a taste of the medicine.

We underwrite all our names to have sufficient upside even if risk-free rates move up to 3% (a scenario, not a forecast!). As we evaluate the opportunity set, we find more attractive prospects in the classic value names. We often hear that people think value investing is dead, which only strengthens our conviction. Our gross exposure to classic value has risen from 44% a year ago to 62% currently.

One new name that illustrates the potential we see is Ovintiv (OVV), an oil and gas producer. We’ve seen a huge shift in the industry away from growth towards returns on capital, cash generation, and capacity discipline. OVV exemplifies the change.

OVV’s new CEO Brendan McCracken says: “We are at the forefront of driving innovation to produce oil and gas from shale both profitably and sustainably. We will generate superior returns and free cash flow by continuously improving capital efficiency and expanding margins while driving down emissions. We will deliver that value to our shareholders through disciplined capital allocation.”

Based on crude at $65 (well below the current $83.82 as of 1/14/22), the company guides to free cash flow generation of $11B over the next 5 years and $21B in the next 10 years. The company’s market cap is currently $10B and its enterprise value is $16B. It’s returning a significant portion of the capital to shareholders. If crude averages $70 in 2022, the company will return $700M to shareholders (in addition to paying down a significant amount of debt), which implies a yield of 7% at the current $39.53 price. In other words, there’s a good shot the company will return nearly its entire market cap to shareholders over the next 5 years.”

6. Cigna Corporation (NYSE:CI)

Number of Hedge Fund Holders: 63

Cigna Corporation (NYSE:CI) is an American multinational managed healthcare and insurance company. Michael Burry’s Scion Asset Management added 75,000 Cigna Corporation (NYSE:CI) shares to its portfolio in Q1 2022, worth about $18 million, representing 8.92% of the total 13F holdings. The hedge fund discarded this position in the second quarter of 2022, amid Burry’s cryptic warnings about the volatile stock market.

UBS analyst Kevin Caliendo on August 8 raised the price target on Cigna Corporation (NYSE:CI) to $330 from $310 and assigned a Buy rating to the shares. As per the analyst, the stock has outperformed its competition since announcing strong Q2 results and lower medical loss ratio forecast for 2022. If COVID-19 and flu remain benign in the second half of the year, the analyst expects “upside to 2022 estimates”.

According to Insider Monkey’s data, 63 hedge funds were bullish on Cigna Corporation (NYSE:CI) at the end of the first quarter of 2022, up from 53 funds in the earlier quarter. Larry Robbins’ Glenview Capital is the leading stakeholder of the company, with 1.6 million shares worth $382.4 million.

In addition to Booking Holdings Inc. (NASDAQ:BKNG), Alphabet Inc. (NASDAQ:GOOG), and Meta Platforms, Inc. (NASDAQ:META), Michael Burry exited Cigna Corporation (NYSE:CI) during the second quarter of 2022.

Here is what the Davis Opportunity Fund had to say about Cigna Corporation (NYSE:CI) in its Q4 2021 investor letter:

“Healthcare is included in the portfolio both for company-specific reasons, as well as big picture trends. At the company level, we hold select companies in pharmaceuticals, healthcare services and health insurance at attractive valuations. This is at a time when the average age of the U.S. population is fast approaching 40, older than Asia-Pacific and a little younger than the aged populations of Europe and Japan. The number of seniors in the U.S.—i.e., 65 years or older— now surpasses 54 million, or about 15% of the population. Seniors, on average, take a much greater number of medications and account for a large and disproportionate share of healthcare spending, and we expect that trend to continue due to both raw demographics and a proliferation in the number of available treatments and services available now, the latter being driven by innovation and investment in the healthcare industry. Representative holdings in the Fund include Cigna, UnitedHealth Group, Viatris and Quest Diagnostics.”

Click to continue reading and see Michael Burry Sells These 5 Stocks to Brace for Impact.