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Where The Big Short Is Finding Value

Michael Burry’s Scion Asset Management once again gave us a glimpse into where he’s finding value these days. Burry, the star in Michael Lewis’ book The Big Short (and portrayed by Christian Bale in the 2015 movie) is known for his big bet on the subprime mortgage crisis.

Burry and his Scion Asset Management had been off the radar for several years, having returned investor money in 2008. Earlier his year, Burry revealed his holdings for the first time in nearly a decade. Now, in his most recent filing, he’s completely overhauled his portfolio.

He went from owning 14 stocks heading into 2016 to just eight, dumping entire stakes in small-caps like Community Health Systems (NYSE: CYH) and CNX Coal Resources (NASDAQ: CNXC).

Here’s how the Michael Burry portfolio looks as of the end of 1Q:

Michael Burry 2Q holdings 

Michael Burry 2Q holdings 

But being the small-cap fans we are, our interest lies in two key questions:

  1. Why does Dr. Michael Burry still have a big bet on Nexpoint Residential (NXRT)?  

Nexpoint is Burry’s second largest holding behind Apple and its smallest-cap holding. Nexpoint is a $300 million market cap real estate investment trust offering a 6% dividend yield. But Burry isn’t invested for the dividend, this is likely a bet on an undervalued REIT. Nexpoint appears to be trading at a discount to its properties based on comparable transactions and market multiples for other properties in the Texas area. It also trades at a discount to peers, while at the same time, still renovating and improving its properties.

  • What’s the Tailored Brand's (TLRD) story?

This is a $650 million market cap holding company of the Men’s Wearhouse. With the Men’s Wearhouse and Jos. A Bank's merger, they changed their name. Shares of Tailored Brands is down 25% over the last year. George Zimmer, Men’s Wearhouse founder, is showing new interest in buying back his company. After an ugly breakup with his former company, Zimmer is now in talks with private equity to raise funds to make another run at helping you “like the way you look, guaranteed.”

  • Burry fell out of love with biotech?

Theravance Biopharma (TBPH) is the one stock Michael Burry was reducing in size, selling off nearly 40% of its stake last quarter. It’s still a tenth of his portfolio, however. This is a near billion dollar market cap biopharma company. Burry may have started selling too soon, though, missing the run up to $24 a share in 2Q. Still, there’s a lot of uncertainty in biopharma right now (thanks Shkreli), and this is even truer for a company that has no income and is trading at 25 times sales. It’s also simple prudent portfolio management to reduce a position that’s up 45% in the last twelve months.

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Michael Burry
  • Smallest position creates the biggest opportunity?

Gentherm (THRM) is Scion’s smallest position. It’s a $1.3 billion market cap thermal management technology maker. It’s a money maker, trading at 12 times next year’s earnings estimates. The stock is down 33% over the last year, nonetheless. If you’re interested in learning more about how to find underrated small-cap stocks + looking for some potential outperformers read up on about the premium side of Underrated Small-Caps Newsletter. With the new pricing and publishing schedule, you’ll be getting more deep dives for less.