Hedge fund manager Michael Burry became famous for foreseeing and profiting from the 2008 financial crisis. While his profile has become much lower since then, Burry is still managing his well-known Scion Asset Management Fund.
One of the biggest surprises in Burry’s Q1 13F was the expansion of his holdings in Chinese eCommerce firm JD.com (NASDAQ:JD).
Burry expanded this position from 75,000 shares in Q4 to 250,000 shares in Q1. This buy, as well as others in Q1, seem to signal Burry’s belief that Chinese consumer spending is due for a recovery as the country emerges from its extended lockdown restrictions.
JD.com may also have appealed to Burry’s instincts as a value investor. At just 16.3 times forward earnings and 11.4 times cash flow, JD.com’s price may not fully reflect its future growth potential. Over the coming 12 months, earnings are expected to increase by over 25 percent.
Despite stiff competition in China’s eCommerce sector, JD.com has been able to set itself apart through its superior logistics.
The company combines an excellent network of delivery infrastructure with AI-driven logistics management to maximize its efficiency. This may have also played into Burry’s decision to buy, as JD.com has significant potential to capture market share if and when a Chinese economic recovery fully materializes.
Burry also expanded his holdings in Alibaba Group (NYSE:BABA). In Q4 of last year, Burry held 50,000 shares in the company. By Q1, that position expanded to 100,000 shares.
The rationale behind this buy appears quite similar to that for JD.com. With over 50 percent market share in China, Alibaba could be a key beneficiary of a Chinese recovery.
Despite China’s economic difficulties, Alibaba has also been able to continue growing at a modest rate. In the most recent quarter, the company reported 2 percent year-over-year revenue growth and 29 percent growth in international eCommerce.
While management has acknowledged the difficulties presented by the current weakness of the Chinese market, Alibaba’s international presence offers it some protection.
Like JD.com, Alibaba could also prove to be a good value buy if economic conditions in China improve. The company’s earnings are expected to grow by about 21 percent over the coming 12 months, while the stock trades at just 12.4 times forward earnings. Alibaba’s financial position also appears relatively strong, with long-term debt totaling just 13 percent of total equity.
Burry initiated a position in Signet Jewelers (NYSE:SIG) in Q1, purchasing 125,000 shares. Signet is the largest diamond retailer in the world, owning brands such as Zales and Jared. In the United States, the company accounts for over 20 percent of all jewelry store revenues.
In Signet’s case, Burry appears to be making a pure value play. At only 6.3 times forward earnings, Signet appears heavily discounted at today’s prices. The stock also maintains an expected price-to-earnings-growth ratio of just 0.79, another strong signal of potential undervaluation.
Signet may also dovetail with Burry’s increasing bullishness on eCommerce. The company has rolled out enhanced digital tools in recent years that allow buyers to compare and shop for diamonds online. These tools have driven higher sales and helped Signet remain at the forefront of its industry.
New York Community Bancorp
Like many investors, Burry has also taken the opportunity to buy the dip of regional banks amid Q1’s selloff. Scion added 850,000 shares of New York Community Bancorp (NYSE:NYCB) to its portfolio last quarter.
These shares were purchased at an average price of $9.02, and Burry has already seen a return of over 20 percent as the stock has risen to nearly $11.
In addition to being undervalued due to a sector-wide selloff, NYCB could prove to be a strong income-generating asset. The stock currently yields 6.24 percent, paying $0.68 per share annually. Given Burry’s average basis, his shares of NYCB offer a yield of roughly 7.5 percent on cost.
Another financial giant Burry bought in Q1 was Capital One (NYSE:COF), with Scion scooping up 75,000 shares of the company.
With the stock down over 16 percent for the past year, Burry appears to have once again been buying the financial dip.
It’s interesting to note that Warren Buffett also initiated a position in Capital One during Q1, likely for similarly value-driven reasons.
Burry also opened a new position of 125,000 in Wells Fargo (NYSE:WFC) in Q1. While the bank has been struggling since Warren Buffett’s decision to sell his longstanding stake last year, its stock appears to be attractively priced today.
Wells Fargo trades at just 8.4 times earnings and still delivers a net margin of nearly 16 percent. While Burry may not see massive growth from this investment, a rebound of the financial sector could net him a healthy profit.
Factors Driving Burry’s Investment Decisions?
While Scion’s 13F for the last quarter showed a great deal of activity, three common threads seem to link most of Burry’s purchases together.
First and foremost appears to be long-term bullishness on China’s economic prospects. While Chinese consumers are still wary of rising costs and economic weakness, Burry seems to believe that the worst is over for Asia’s largest economy.
A second theme in Burry’s investments appears to be a belief in the continued growth of eCommerce. From Alibaba to Signet, many of Burry’s acquisitions hinge on consumers continuing to move to online platforms for their shopping needs. While some investors believe that eCommerce is a maturing market, Burry seems convinced that the industry still has room to run.
Finally, Burry made a series of financial acquisitions that appear to be based on an assumption that US financial stocks are oversold. This may explain his positions in Capital One, NYCB and Wells Fargo. Significant selling activity may have made these stocks attractive values, especially given the high dividend yields that can be found among financial stocks.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.