2 Stocks Michael Burry Just Bought

Dr. Michael Burry of “The Big Short” fame shocked many, enraged some, and intrigued everyone when he pulled the curtain on Scion Asset Management’s latest moves. Undoubtedly, the big story was the $1 billion bet against Palantir (NASDAQ:PLTR | PLTR Price Prediction) and Nvidia (NASDAQ:NVDA), two of the most-loved AI stocks that have enriched many retail investors who showed up early to the game.

While it’s too soon to tell when the tides will turn, I do think it’s entirely possible for a hot momentum trade to reverse course without a moment’s notice. As such, I’d take Dr. Burry’s AI commentary and investment moves as a warning that one must never lose sight of a stock’s valuation, even if the growth narrative is one of the most impressive in more than a decade. You may be right in that Nvidia could accelerate its growth, but will the stock react as you think it will in response? Or has such a boom already been priced in? That’s the big risk. And it’s worth contemplating as a growth investor in an era of extended valuations.

Though a vast majority of the focus has been on Burry’s bearish bets and one of his biggest shorts (bearish put options, actually) in a long time, I think an equal amount of focus should also go into the long positions that Dr. Burry and Scion made in the third quarter. There were three notable buys in Q3, and, in this piece, we’ll check out two that I find the most interesting.

Lululemon Athletica

Lululemon Athletica (NASDAQ:LULU) is an existing long position that Dr. Burry initiated in the second quarter. And it’s been a laggard that’s continued to lag through the third quarter. Still, what does a value investor do when a value investment gets even cheaper? Buy more, of course! And Burry has done just that in the third quarter, with Scion doubling its position in the hard-hit yoga wear maker that’s still in a downward dog.

With shares at new depths at $160 and change per share, I do view the falling knife as worth averaging into over time. It’s still a great brand that could prosper once the consumer is ready to spend big money again. At 10.9 times trailing price-to-earnings (P/E), I think it’s starting to get ridiculous how cheap the yoga wear maker has become.

Although I have no idea when the tides will turn, I do think the big Burry buy is worth giving a closer look at these historic depths. Perhaps Lululemon’s NFL deal could make the brand resonate better with men and open up a new growth runway in a category that the firm has only experienced limited success with. Of course, it’ll take more than pro sports deals to reverse course. In any case, expectations are low enough that Lululemon stock might be a tough play to lose money in over the next two years or so.

Molina Healthcare

Managed care providers have had an awful year, but that’s exactly why value investors should like the names. Molina Healthcare (NYSE:MOH) is a mid-cap ($7.8 billion market cap) name that you’re probably not familiar with. The stock has lost close to 64% from peak levels and trades at a mere 9.3 times trailing P/E. Investors seem to be ignoring the single-digit P/E, but not Dr. Burry, who might know more about healthcare (he is a real doctor, after all) than most other big money managers.

With a slew of downgrades on the health insurer and industry headwinds (higher costs) that have been weighing Molina Healthcare shares down all year, it takes a great contrarian to step in as a buyer here, especially now that everyone has given up on the name. With a low beta and a rock-bottom multiple, perhaps shares are worth checking out at around $150.