Tesla (NASDAQ:TSLA) is having a rough start to 2021. Through the first six weeks of the year, Tesla stock has a total return of just 13%.
Despite the fact Elon Musk’s electric vehicle company has doubled the U.S. markets as a whole, one gets the feeling that the company’s stock price is due for a correction after gaining almost 100% in the last three months alone.
Michael Burry, best known in investment circles for betting against the housing markets in 2007 and 2008 (the bet made Burry $100 million personally and led to Michael Lewis writing The Big Short) believes that Tesla stock could lose 90% of its value in 2021.
Tesla Stock Is Going Down
On Feb. 15, Burry tweeted his thoughts on the subject:
$TSLA below $100/share by later this year will not crash the system. There is no reflexivity in such a fall. But it would trigger the end of an era for a certain type of investing.
While I remain optimistic about Tesla’s future, it’s hard not to take notice when someone who got something so incredibly right is projecting doom and gloom for its shareholders over the next 10 months.
As a public service, I thought I’d select a couple of stocks to buy that Burry’s company, Scion Asset Management, owns. They might not be quite as exciting as Tesla, but they could keep you from losing your shirt should Burry be right about the EV maker.
Value Play No. 1
As I look at Scion’s 23 holdings, I see several value plays from beaten-down industries that could offer protection from a drop in Tesla stock.
My first pick would be Kraft Heinz (NASDAQ:KHC). At the end of December, Burry’s firm owned 589,700 shares of the food company, making it the third-largest holding.
I recently called Kraft Heinz one of the best consumer stocks to buy while watching the NFL playoffs. My rationale had everything to do with improving free cash flow.
“For the trailing 12 months ended Sep. 26, 2020, its free cash flow was $4.3 billion, the highest it’s been in some years, giving it a current FCF yield of 6.6% based on an enterprise value of $65 billion,” I wrote on Jan. 19. “If its free cash flow keeps improving and the share price doesn’t move anywhere, it’s in value land.”
Interestingly, Kraft Heinz turned around and sold Planters to Hormel Foods (NYSE:HRL) on Feb. 11 for $3.35 billion in cash. It is Hormel’s largest acquisition in its history.
Kraft Heinz sold Planters because it was getting pummeled by private label peanut brands. With $29.2 billion in debt as of the end of 2020, the funds will come in handy.
Its FCF yield remains attractive at 6.5%.
Value Play No. 2
Molson Coors (NYSE:TAP) isn’t one of Burry’s largest plays. It’s also not one of the money manager’s smallest bets. That puts it right in the middle.
As a company that makes horrible beer (sorry to all those Coors lovers) and whose business is doing terribly from a financial perspective, it’s hard to get excited about this investment.
On Feb. 11, Molson Coors announced full-year sales of $9.65 billion (8.7% lower) and underlying non-GAAP net income of $851.7 million (13.5% lower). On a GAAP basis, it lost $949 million.
Financially speaking, the bright spot is that it had an underlying non-GAAP free cash flow of almost $1.3 billion despite a $1.5 billion impairment charge from its European business.
However, as Chief Executive Officer Gavin Hattersley said in its Q4 2020 news release, “We expanded beyond the beer aisle and we set the stage to build our emerging growth division into a $1 billion revenue business by 2023.”
One of the projects of Molson Coors’ emerging growth division is Truss CBD USA, its joint venture with the Canadian cannabis company, Hexo (NYSE:HEXO).
On Jan. 13, the company announced the U.S. launch of Veryvell Sparkling CBD Water in Colorado, its home state.
“Truss’ entry into the CBD market in Colorado and the launch of Veryvell, a brand we believe will resonate well with Colorado consumers, is another example of Molson Coors’ expansion into new beverage categories,” stated Pete Marino, the president of Molson Coors’ emerging growth business.
I see Truss being a savior for both Molson Coors and Hexo. But it’s going to take some time.
Trading at 7x cash flow, almost half its five-year average, TAP is one of the few cheap stocks available today regardless of the fact it’s suspended its dividend.
The Bottom Line
I must admit, Burry’s put together a fascinating group of stocks. And while you might think I’ve been smoking some of Hexo’s products given my Molson Coors recommendation, I could see it turn the corner in 2021.
As for Kraft Heinz, it continues to see progress from its multi-year transformation plan it set in motion in February 2020. In 2020, its free cash flow grew 55.5% to $4,3 billion.
Investors can expect more progress in 2021.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
