Michael Burry’s Top 7 Stock Buys for 2023 - Simply Wall St (2024)

Chinese retail giant on the road to recovery.

• Scion Asset Management’s most recent purchase of Alibaba Group Holdings amounted to 50,000 shares at an estimated value of US$4,405,000. This purchase means that BABA now accounts for 9.47% of Scion’s portfolio.
• While it isn’t necessarily Burry’s biggest purchase in the quarter, it is perhaps the most intriguing. It seems Burry is showing some confidence in Chinese tech. It’s actually not the first time he’s done that. All the way back in Q2 2019 he purchased Alibaba shares, so he actually isn’t a stranger to the business.
• It appears as if the repressed share price was enough to entice Burry back into Chinese tech stocks, as the share price of Alibaba had fallen as much as 45% from the highs of early 2022 by November. Timing was once again on Burry’s side as BABA’s stock price has shown an impressive recovery, gaining over 50% of its value since the lulls of November.
• In March of 2022, the company announced it was increasing the share repurchase program from US$15B to US$25B, as a signal to shareholders that the company has confidence in its future growth. Despite the hardships faced in the latter half of 2022, the program will continue to be effective for a two-year period through March 2024.
• Aliababa’s financial performance was heavily impacted by COVID-19’s late resurgence in China. While revenues increased marginally to US$29.12B and income from operations grew 68% to US$3.53B, the company actually posted a net loss for the quarter of US$3.16B. This is attributed in part to losses incurred on their equity investments in publicly-traded companies and a decrease in share of results of equity method investees.
• A late resurgence of COVID-19 in China also led to tough domestic conditions for the sales of goods, resulting in a drop in gross merchandise value sold.

Chinese e-commerce company showing strength in revenue diversity.

• Scion Asset Management’s most recent purchase of JD.com Inc. amounted to75,000 shares at an estimated value of US$4,210,000. This purchase means that JD now accounts for 9.05% of Scion’s portfolio.
• JD is the second Chinese e-commerce major that Burry has taken an interest in recently. In a very similar fashion to Alibaba, this is not Burry’s first rodeo with the company, having bought JD way back in the first quarter of 2019.
• A declining share price could’ve been a similar motivator for Scion’s latest investment into JD, as the share price had fallen around 50% since the highs of March 2022. In what seems to be a recurring pattern, Burry looks to have timed his entry into the stock impeccably, as the company is up over 40% since its lowest point in the quarter that he made his purchase.
• JD has recently looked to capitalise on the surge in interest around AI technology. On February 15th 2023, JD Cloud announced it had launched "ChatJD", an integration of ChatGPT into JD’s retail and finance business in the form of a human-computer dialogue platform. This isn’t actually the company’s first foray into AI-generated content, as the company had previously developed an in-house AI service chatbot called Yanxi AI, which has been used by over 588M consumers.
• JD’s revenues for the quarter totaled US$34.2B, a respectable increase of 11.4% from the third quarter of 2021. While not the largest component of these results, the company’s net service revenues for the third quarter of 2022 were US$6.5B, an increase of 42.2% from the third quarter of 2021 and a valuable indication that their diversified revenue streams can provide excellent growth channels when retail lags.
• The company’s earnings for the quarter came in at US$870M, compared to a net loss of US$407M for the same period last year.
• Annual active customer accounts increased by 6.5% to 588.3M in the twelve months ended September 30, 2022 from 552.2 million in the twelve months ended September 30 2021.

Prospective acquisition creates an interesting value narrative

• Scion Asset Management’s most recent purchase of Black Knight Inc. amounted to 150,000 shares at an estimated value of US$9,263,000. This purchase means that BKI now accounts for 19.90% of Scion’s portfolio.
• With this most recent purchase, Black Knight Inc. is now the second largest holding in Scion’s portfolio behind GEO Group Inc. (NYSE:GEO), a position which Burry actually reduced exposure to by 47.35% in the most recent quarter.
• Black Knight is a company that partners with banks and mortgage lenders to streamline the home loan process. They provide software that helps to manage and process loans, handle customer documents and information, and make sure everything is secure and compliant with regulations along the way.
• It’s important to note that a lot of prospective investors recently aren’t necessarily buying the company on the merit of its business, rather, investors are hedging their bets that the deal for Intercontinental Exchange (NYSE:ICE) acquiring Black Knight proceeds.
• Intercontinental Exchange entered into a definitive agreement to acquire Black Knight at a US$13.1B valuation, however, the market cap currently sits at US$9.92B. So that’s a potential 32% upside if the deal goes through, but currently the deal is being held up by regulators who have expressed concerns over antitrust.
• From a business perspective, the recent and rapid rise in interest rates have caused difficulties for Black Knight’s business clients, a challenge which has materialised in the company’s most recent financial reports. While revenues saw a slight 2% organic uplift to US$386.7M for the third quarter, Operating Income was down 18% to US$68.2M compared to the prior year period and Earnings fell dramatically by 44% to US$30M.

Semiconductor and optics company with strong growth potential.

• Scion Asset Management’s most recent purchase of Coherent Corp. amounted to 150,000 shares at an estimated value of US$5,265,000. This purchase means that COHR now accounts for 11.31% of Scion’s portfolio.
• Previously known as II-VI (Two-Six) Incorporated, the company began trading as Coherent Corp following the successful acquisition of Coherent Inc. in July of 2022.
• Coherent’s business is centered around the production of three main types of products; Semiconductors, Networking equipment and Optical Lasers.
• It’s interesting to note that the company is down some 52% since their peak in early 2021, around the time the proposal to acquire Coherent was announced. But Michael Burry seems to have timed his entry into the company well as the share price is up ~40% since October 2022.
• Business-wise, the company has delivered some meaningful results with quarterly revenue coming in at a record US$1.37B, illustrative of a 70% growth year-over-year despite the lingering supply chain challenges.
• Despite the uplift in revenues, the company hit a rougher patch on the earnings front. Increased materials costs and interest costs hurt earnings which delivered a US$0.58 per share loss compared to a US$0.44 gain in the same quarter of the prior year. The increased difficulties in recent times is evident in the company’s gross margin falling from 38.6% year-on-year to 30% and operating margin falling from 12.2% to 0.6% on a GAAP basis.
• Importantly in a high interest rate environment, the company was able to retire US$133M of debt during the quarter, lowering interest obligations for future quarters.

Travelers are still spending large on travel and entertainment.

• Scion Asset Management’s most recent purchase of MG Resorts International amounted to 100,000 shares at an estimated value of US$3,353,000. This purchase means that MGM now accounts for 7.20% of Scion’s portfolio.
• MGM Resorts name synonymous with Las Vegas, MGM Resorts International controls the entertainment conglomerate holds iconic properties dotted throughout the Las Vegas strip including the Bellagio, Mandalay Bay, Aria, and MGM Grand. The company’s interests also extend internationally to MGM Cotai in Macau and MGM Grand Sanya in China.
• Beyond its casino holdings, MGM also has interests in several entertainment and gaming ventures, including online gaming and sports betting.
• MGM added to their already extensive list of Las Vegas strip resorts with the acquisition of The Cosmopolitan of Las Vegas. The acquisition announced in May of 2022 saw MGM close out the US$1.625B cash transaction and acquire a valuable revenue generating asset.
• Since the start of Q2 2022, the company’s share price is up some 46%, another example of Scion’s timely investment acumen.
• It seems that Burry’s investment in MGM Resorts are a bet on the continued strong expenditure on travel and entertainment despite a tough macro environment.They say "don’t bet against gambling" and they might be right. Despite interest rates rising in an attempt to curtail household expenditure, total gaming revenue across Nevada increased 10.5% to US$14.8B - a new annual record, with December being the largest individual month.

Huge footwear conglomerate re-strategising for success.

• Scion Asset Management’s most recent purchase of Wolverine Worldwide amounted to 356,100 shares at an estimated value of US$3,892,000. This purchase means that WWW now accounts for 8.36% of Scion’s portfolio.
• Wolverine Worldwide may not be a name that is immediately recognisable to people but perhaps some of the brands under its umbrella will be. Wolverine Worldwide is an American footwear manufacturing conglomerate that manufacturers branded footwear under names like Saucony, Hush Puppies, Merrell, Sperry and CAT.
• The company recently sold off its Keds brand to Designer Brands (NYSE:DBI), a move that is expected to generate a cash inflow of over US$90M which will be used to pay down debts. In a move to further monetise its existing brand portfolio, Wolverine Worldwide has opted to license its Hush Puppies brand from July 2023.
• It seems cheap pricing could’ve once again been the motivator behind Burry’s WWW purchase, as the company had come off as much as 60% from its highs 12 months ago following a rocky reception to their third quarter results in early November. The company has recovered around 60% since these November lows but still sits around 37% lower than it did this time last year.
• Third quarter revenue for all segments totaled to US$691.4M which represents year-on-year growth of 8.6%. Gross margin for the third quarter of 40.2% versus 43.2% in the prior year which is a reflection of greater international distributor sales that carry relatively lower gross margin but operating margins on par with overall business.
• Wolverine Worldwide’s net debt at the end of the quarter was US$1.35B and liquidity was US$400M.

Aircraft operator looking to reverse the trends.

• Scion Asset Management’s most recent purchase of SkyWest Inc. amounted to 125,000 shares at an estimated value of US$2,064,000. This purchase means that SKYW now accounts for 4.44% of Scion’s portfolio.
• SkyWest Inc. is the holding company for SkyWest Airlines and Skywest Leasing. The company partners with several large airlines to staff, operate and maintain aircraft used by other mainline airlines. SkyWest leases a fleet of more than 515 aircraft through contract partnerships with United Airlines (Nasdaq:UAL), Delta Air Lines (NYSE:DAL), American Airlines (Nasdaq:AAL)and Alaska Airlines (NYSE:ALK) to operate.
• The last year hasn’t been too great for SKYW shareholders, but those who were astute enough to open a position in the last quarter of 2022 could be looking at a return of over 25% in the last few months.
• SkyWest’s most recent full year results saw the company post earnings of US$73M period, a strong finish to the year despite the Q4 results lagging significantly, with the company reporting a net loss for the final quarter totalling US$47M. The company did attribute these fourth quarter results to deferred revenues under their newly amended contracts, a $36M impairment charge and accelerated expenses on 21 leased aircraft.
• Considering the total flight hours for the fourth quarter is down 18.3% compared to the same time last year, and total departures and passengers carried are down 15.3% and 12.1% respectively, SkyWest didn’t necessarily look like a business that was thriving in the current macroeconomic environment. However, as Burry’s bet on MGM has shown, perhaps he is anticipating a fairly quick turnaround in traveler sentiment and will expect these metrics to reverse their downward trend in the later half of 2023.