With the Scion Asset Management hedge-fund manager rocketing to fame thanks to the film “The Big Short,” seemingly everyone wants to talk about Michael Burry stock picks. Recently, CNBC featured the contrarian and often-enigmatic investor, disclosing Scion’s top 10 holdings as of the first quarter’s end.
True to form, these Michael Burry stocks offer an eclectic canvas, reflecting the brilliant mind of the physician-turned-investor-turned-social-media-influencer. In all seriousness, investors should consider the ideas, irrespective of their feelings toward Burry. Notably, most of the holdings in the top 10 reflect new positions. Like anything, there are some stocks to buy according to Michael Burry and I would argue securities you might want to avoid. Below is a critical breakdown of some of the hedge fund manager’s best ideas.
If you’re a disciple of Michael Burry stock picks, then targeting Chinese e-commerce giant JD.com (NASDAQ:JD) may be a no-brainer. Sure, it’s been a tough road for JD. Since the beginning of this year, shares plunged more than 39%. While China’s economy is rebounding, the overall effort has been patchy. Combined with broader headwinds such as blisteringly high inflation in several parts of the world and U.S. regional bank failures, investors have gone to the sidelines.
Still, this framework might present a contrarian opportunity for those looking ahead. After all, part of Michael Burry’s investment strategy is contrarian thinking; that is, seeing what might be, not what is at the moment. While focusing on domestic securities may have worked out in the past, moving forward, the international arena may offer superior growth opportunities.
Plus, it’s interesting that per CNBC, Scion increased its position in JD by 233%. That’s about as confident of a read as you’ll get from the most recent Michael Burry stock picks. Finally, Wall Street analysts peg JD as a consensus strong buy. Their average price target lands at $62.18, implying over 77% upside potential.
If you thought JD.com symbolized a no-brainer for Michael Burry stock picks, then Alibaba (NYSE:BABA) should also be given. True, the company suffers similar challenges to its rival, though to a lesser degree. For example, since the Jan. opener, BABA stock slipped nearly 10%. However, shares appear to have stabilized recently, possibly making it an enticing discount.
Again, Alibaba’s bullish narrative centers on what might be for the Chinese economy. Understandably, investors are jittery about the slow recovery process. However, China also imposed draconian zero-Covid policies at a scale unseen this side of North Korea. Put another way, the Chinese consumer market may have a long recovery pathway. Thus, patience may be rewarded. In addition, BABA easily ranks as one of the stocks to buy according to Michael Burry. Per CNBC, Scion increased its exposure to Alibaba to the tune of 100%. Just like some of his tweets, Burry’s doubling down.
Lastly, BABA carries a unanimous strong buy view with a $147.38 price target, implying nearly 78% upside potential.
Sibanye Stillwater (SBSW)
Ranking among the pleasures of investing in Michael Burry stocks is their eclectic nature. Conspicuously, South Africa’s precious metals mining enterprise Sibanye Stillwater (NYSE:SBSW) made the cut, and arguably for darn good reason. With concerns soaring regarding the debt ceiling fiasco, financial stability in the mighty U.S. should not be taken for granted. However, with Sibanye, you can enjoy convenient exposure to gold other than lugging bullion bricks around.
As with other Michael Burry stock picks, SBSW will require a contrarian mindset. Since the beginning of this year, shares tumbled nearly 30%. And in the past 365 days, they dropped almost 38% in equity value. Still, with gold continuing to perform reasonably well, SBSW might be worth a shot.
Another reason why SBSW stands among the stocks to buy according to Michael Burry is the underlying value proposition. According to Gurufocus, the market prices SBSW at a forward multiple of 6. As a discount to projected earnings, Sibanye ranks better than 78.53% of the metals and mining industry. Also, analysts peg SBSW as a strong buy. Their average price target comes out to $12.53, implying over 64% upside potential.
Coherent Corp (COHR)
Perhaps the least contrarian of Michael Burry stock picks – and that’s on a relative basis, of course – Coherent Corp (NYSE:COHR) delivers a sensible fundamental argument. Headquartered in Saxonburg, Pennsylvania, the manufacturer of optical materials and semiconductors can benefit from the push to drive more domestic production of technological goods. To be fair, Asia still dominates the semiconductor ecosystem. Nevertheless, step-by-step progress may yield big gains for the domestic sector.
With Coherent representing a middle-capitalization play – carrying a market cap of $4.45 billion – COHR may enjoy an outsized return on domestic tech production. That seems to guide the broader reason why COHR is one of the stocks to buy according to Michael Burry.
Another factor may come down to the financials. According to Gurufocus, the market prices COHR at 0.89 times trailing sales. As a discount to revenue, Coherent ranks better than 64.73% of its peers. Also, COHR trades at 0.56 times the projected free cash flow. In contrast, the sector median stat is a loftier 1.41. Lastly, analysts peg COHR as a consensus strong buy. Their average price target stands at $42.83, implying over 34% upside potential.
Capital One Financial (COF)
Now, while we may all appreciate the upside potential of Michael Burry stock picks, the man’s human too. At some point, he’s going to issue some blunders. One of them might be Capital One Financial (NYSE:COF). To be clear, I’m not suggesting that you sell COF if you own it. Nor am I saying to short it. Rather, it’s a tricky idea given the wider circumstances.
On the positive side, I can appreciate why COF might be one of the stocks to buy according to Michael Burry. With major headwinds such as inflation, regional bank failures, and a possible recession stemming from the debt ceiling crisis, consumers might start racking up debt to stay afloat. Thus, the relevancy sees COF popping up by nearly 10%. Still, COF could also be one of the stocks to sell according to Michael Burry. Yes, it’s a new position so Scion probably won’t dump it. However, the issue with a debt-related enterprise is that you must trust the borrowers will pay back their loans.
However, with consumer debt passing the $17 trillion mark for the first time, I’m not sure if COF is ideal.
Signet Jewelers (SIG)
With the inclusion of Signet Jewelers (NYSE:SIG) in the list of Michael Burry stock picks, the hedge fund manager provided some insight into his thought process. Here’s my take on the matter. With Covid-19 initially forcing everyone to quarantine, the dynamic imposed a loneliness problem on society. Therefore, once restrictions and fears of infection faded, people were ready to socialize again.
Plus, those stimulus checks might not be enough for a downpayment on a house. But they could buy a pretty sweet engagement ring. And so far, the narrative seems bullish for Signet, with SIG gaining over 7% since the Jan. opener. However, this love story might not last. Earlier this year, Signet reported lackluster sales of engagement rings. Moreover, it expects more of the same looking ahead. From a fundamental view, SIG might qualify as one of the stocks to sell according to Michael Burry.
Nevertheless, if you wish to be contrarian, the market prices SIG at a forward multiple of 6.78. On paper, Signet ranks better than 91.41% of the cyclical retail industry. My point is that there might be a reason for the discount (and not a good one).
Zoom Video Communications (ZM)
Out of all the top 10 Michael Burry stock picks, the inclusion of Zoom Video Communications (NASDAQ:ZM) took me by surprise. Per CNBC, ZM represents a new position with Scion, which holds (as of Q1 end) $7.4 million worth of shares. It’s a tough position because of its apparent lack of relevancy. I mean, I respect Burry’s contrarianism but this might have gone a bit too far.
Since the start of the year, ZM gave up 1.5% of market value. In the trailing year, shares fell more than 30%. As Barron’s pointed out, Zoom initially popped higher in late trading Monday after the videoconferencing software specialist posted better-than-expected results for its fiscal Q1. Unfortunately, on Tuesday, ZM dropped 8%, negating the prior five sessions’ positive return.
Fundamentally, Zoom might lose a large chunk of relevance if the employment arena fully normalizes. That is, if employers start recalling their workers back to the office, the need for teleconferencing platforms would diminish. Plus, it’s not like Zoom is an exclusive provider of such services. So, while investing in Michael Burry stocks can be lucrative, I’d be careful with ZM.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.