Motley Fool - Thu May 18, 2023
There aren't too many investors that the entire market watches, but Michael Burry is certainly one of them. Burry rose to fame for short bets he made on the housing market right before the Great Recession, and was portrayed by Christian Bale in the movie The Big Short.
As a result, the market keeps a close eye on investments made by Burry's firm, Scion Asset Management. Here are two shocking stock moves Burry made in the first quarter.
1. Burry bought the dip on banks
After the banking crisis broke out in March, many wondered who would deem it as an opportunity and buy the dip in bank stocks. Burry made a big move in the sector, buying the following banks:
- New York Community Bancorp(NYSE: NYCB): 850,000 shares
- PacWest Bancorp(NASDAQ: PACW): 250,000 shares
- Huntington Bancshares(NASDAQ: HBAN): 184,900 shares
- First Republic Bank(OTC: FRCB): 150,000 shares
- Western Alliance Bancorporation(NYSE: WAL): 125,000 shares
- Wells Fargo(NYSE: WFC): 125,000 shares
- Capital One Financial(NYSE: COF): 75,000 shares
When the banking crisis began, Burry made it pretty clear that he thought the crisis was manageable, tweeting on March 14, shortly after the crisis began: "This crisis could resolve very quickly. I am not seeing true danger here."
I'm a little surprised to see that Burry bought so much of First Republic because it looks like his average price was $14 per share. As most now know, the Federal Deposit Insurance Corp. (FDIC) ended up seizing the bank and closing it down. Obviously, it's hard to know exactly when Burry bought, but I thought it became pretty clear after a few weeks that the bank had a giant hole in its balance sheet and not a lot of good options moving forward. Perhaps Burry expected more government intervention.
I definitely like Burry's purchase of New York Community Bancorp because its acquisition of Signature Bank's assets and liabilities after the bank was shut down by regulators looks like a real winner. PacWest and Western Alliance have been some of the most pressured bank stocks since the crisis began but have huge upside if they can successfully navigate the near-term volatility.
Wells Fargo and Capital One have actually held up well this year, but many think the market has not given Capital One's business and management team enough credit. While a recession can be difficult for credit card lenders, the company has been in this business for decades and seems to be prudently reserving for future loan losses.
Meanwhile, Burry might be getting optimistic that most of Wells Fargo's regulatory issues that have dogged the bank for years are now in the rearview mirror. Huntington has been sold off with the other super-regional banks, but it has strong fundamentals when it comes to capital and liquidity.
2. Burry bulked up on exposure to China
In the first quarter, Scion continued to bulk up its existing positions in the Chinese tech and e-commerce conglomerates Alibaba Group(NYSE: BABA) and JD.com(NASDAQ: JD). Scion added 175,000 shares of JD.com and 50,000 shares of Alibaba. The two positions now make up close to 20% of Scion's total portfolio.
Chinese stocks have struggled in recent years due to a weaker economy and geopolitical tensions with the U.S. Many believe the Chinese economy is set to recover this year after a difficult year in 2022, dulled by zero-COVID restrictions including widespread lockdowns. However, while the Chinese economy grew nicely in the first quarter, some data points such as weaker retail sales and high youth unemployment have concerned investors.
Recently, tensions between the U.S. and China have increased, particularly around the tech sector, where the U.S. has implemented policies intended to slow the development of some technologies in China by limiting sales of certain microchips to Chinese companies. Meanwhile, China has recently launched a probe into the chipmaker Micron Technology and may consider banning the company from selling chips in the country.
There was also big news from Alibaba in the first quarter. The company announced a big restructuring plan, which involves splitting into six different divisions and exploring initial public offers for each one. The plan was well received by the market because investors believe it will eventually allow the market to value Alibaba using a sum-of-the-parts valuation, which should extract shareholder value. Furthermore, investors believe dividing the company into six parts makes it less risky from a regulatory perspective.
While there is uncertainty regarding Chinese economy and geopolitical tensions with the U.S., if there are two Chinese stocks to buy for the long haul, they are certainly Alibaba and JD.com.
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JD.com. The Motley Fool recommends Western Alliance Bancorporation. The Motley Fool has a disclosure policy.
