Immortalized in the film The Big Short, Dr. Michael J. Burry, the famed contrarian investor who currently runs Scion Asset Management, is known to ruffle more than a few feathers on Wall Street. What makes him distinct among other noisemakers is that Burry made a massive bet against the housing boom of the 2000s, instantly earning him respect. He’s now warning folks about a similar setup with certain overvalued stocks.
This time, though, Burry’s premonitions about impending doom in the markets is meeting a different kind of resistance. For one thing, his forecasts regarding overvalued stocks have become a known commodity. Therefore, it lacks the shock effect of his first run as a notable contrarian. Second, Burry’s made some calls — such as his bearish bet on Tesla (NASDAQ:TSLA) — that have yet to pan out, resulting in some skepticism.
But most conspicuously, Wall Street darlings, such as market matriarch Cathie Wood have decisively taken the opposite stance. This dynamic sets up an intriguing showdown because let’s face it — both Burry and Wood have earned their status as investing experts. Unfortunately, it also means that if these two are on opposite ends of the spectrum regarding certain overvalued stocks, someone’s going to suffer at least temporary reputational damage.
Upping the ante, though, is Burry, who stated that he’s shorting Wood’s flagship ARK Innovation ETF (NYSEARCA:ARKK). According to MoneyWise contributor Clayton Jarvis, “In a since-deleted tweet from February, Burry compared Wood and ARKK to investor Gary Pilgrim and his PBHG Growth Fund, which soared in the mid-1990s by backing innovative technologies, much like ARKK does.”
Jarvis added, “After the brief explosion in value tech stocks enjoyed in 1999, PBHG Growth fell by 34% in 2001 and another 30% in 2002.” Considering that ARK Innovation has several popular growth names under its belt, labeling those as overvalued stocks is certainly not going to make Burry friends in this environment.
Then again, since when did the hedge fund manager ever give a rat’s behind about catering to anyone’s sensibilities? If you want to bet that lightning strikes twice for the famed — or is that notorious? — contrarian, here are the overvalued stocks that Burry is either dumping or betting against.
- Occidental Petroleum (NYSE:OXY)
- Meredith (NYSE:MDP)
- Genco Shipping & Trading (NYSE:GNK)
- NOW Inc. (NYSE:DNOW)
- Discovery Communications (NASDAQ:DISCA)
- The Geo Group (NYSE:GEO)
- Allstate (NYSE:ALL)
To be clear regarding the tone of this article, this isn’t about my interpretation of overvalued stocks but rather names that Michael Burry thinks are due for a correction. While he certainly has prominence, just remember that he’s also human — and humans make mistakes. Therefore, take this piece as entertainment only.
Overvalued Stocks on Michael Burry’s List: Occidental Petroleum (OXY)
When I heard that Burry dumped hydrocarbon exploration firm Occidental Petroleum, I can’t say that I was surprised. As you know, the novel coronavirus pandemic devastated the oil industry because the crisis directly affected personal mobility and commercial activities related to non-essential businesses.
But as people got used to the new normal, OXY stock — as did other oil-related investments — began to rise on the anticipation that the crisis will eventually fade. Aside from the lingering delta variant, that might be the case. Still, there’s also an argument that OXY belongs in a list of overvalued stocks.
Why? According to the U.S. Bureau of Transportation Statistics, vehicle miles traveled exponentially exploded higher since the pandemic’s doldrums last year. At the same time, these miles are at the same level they were in November 2015 — and it’s safe to say that a lot has changed in the world since November 2015.
Unless travel increases significantly, the weaker players in the energy space are vulnerable to becoming overvalued stocks. You might not agree with Burry but this one makes sense.
Another company that made it onto Michael Burry’s hit list of overvalued stocks is Meredith, a media conglomerate based in Des Moines, Iowa that owns magazines, television stations, websites and radio stations. According to its investment profile, “Meredith’s premium digital network reaches more than 150 million consumers each month.”
For those who are on the bullish end of the spectrum, MDP stock has an understandable narrative particularly because of the Covid-19 crisis. With so many people forced to work from home and with traditional high-contact entertainment options removed from the table, people had little choice but to resort to home entertainment solutions last year.
In theory, that should have led to a boon for Meredith’s business. Instead, revenue for the fiscal year ended June 30, 2020 was $2.85 billion, down 11% against the prior year. In FY 2021, this figure improved to $2.98 billion based on preliminary fiscal results. Still, this tally was down nearly 7% from 2019 results, which raises a lot of questions.
Apparently, Burry feels that MDP should have responded better financially from the free marketing opportunity last year that the pandemic provided but did not. I can appreciate his point here too.
Overvalued Stocks on Michael Burry’s List: Genco Shipping & Trading (GNK)
Genco Shipping & Trading is a company Burry considered one of the overvalued stocks, yet this has proven to be inaccurate so far. “According to securities filings, Scion Asset Management sold off its entire stake in Genco Shipping & Trading,” wrote Insider Monkey contributor Usman Kabir. The jettisoning of this position occurred between March and June of this year.
That being the case, Burry might want to have this one back. On a year-to-date basis, GNK stock is up 162%. Not only that, over the trailing six months since Aug. 27 — which coincidentally covers the period that Burry was dumping shares — GNK almost doubled in value.
I’m not mentioning this to cast aspersions on Burry. He’s a superstar and nothing can take that away from him. However, it just proves that even Wall Street’s rock stars can get things badly wrong.
I can see why Burry jettisoned GNK since the underlying company’s first-quarter sales were underwhelming compared to pre-pandemic figures. However, the company posted strong Q2 revenue, which explains the momentum in the share price.
NOW Inc. (DNOW)
If I had to pick out a theme regarding what Michael Burry considers overvalued stocks, I’d say that he’s not a big believer in the broader economic recovery narrative. Bolstering my suspicion is that Burry sold a significant stake in NOW Inc. during Q1 of this year.
Billed as a “leading global supplier of energy and industrial solutions, products and engineered equipment packages,” NOW offered substantial relevance as an infrastructural play. Still, DNOW stock was always a choppy before the pandemic, never really providing stakeholders with much confidence. But then the Covid-19 pandemic happened and the narrative at the time went to you know what.
What’s interesting about Burry is that he’s agnostic about his investment choices. For instance, he was buying DNOW stock in Q4 2020, only to sell shares in the following quarter. Sure enough, this trade proved to be quite the lucrative one for those who follow Burry’s market dealings.
And to be fair, he hasn’t been buying into DNOW — and staying on the sidelines has absolutely been the right move thus far.
Overvalued Stocks on Michael Burry’s List: Discovery Communications (DISCA)
One of the more fascinating profiles in market analysts is not just about what they buy (or sell if they are the bearish type); rather, it’s much more interesting to know when they take the opposite side of the thesis they were originally propagating earlier. Case in point for Michael Burry is Discovery Communications.
According to data from Cheaperthanguru.com, Burry bought DISCA stock in Q1 2020, then followed it up with more acquisitions in Q2 of the same year. While I’m not going to decisively say this was the reason, I’ve got to imagine that the hedge fund manager foresaw the impact the pandemic would have on traditional entertainment outlets. Therefore, companies that catered to home media distribution made perfect sense for the incoming new normal.
But then, Burry sold massive amounts of shares in Q4 2020, which in hindsight was a tad too early. But, he only exited half of the position. The other half he sold during Q1 2021 and that happened to be a very good time to dump since DISCA went parabolic, becoming one of the screaming overvalued stocks.
Given that Burry two-timed this equity unit, I think it’s telling that he hasn’t bought in yet.
The Geo Group (GEO)
Easily the most controversial of the overvalued stocks on this list, The Geo Group earned its notoriety for an obvious reason. While the company bills itself as a global leader in evidence-based rehabilitation, providing “programs to individuals while in-custody and post-release into the community” via its proprietary Continuum of Care protocol, the simple reality is this: Geo is a private prison.
As such, it’s going to attract sharp criticism and I can’t say it’s not undeserved. Look, whether you want harsher penalties for lawbreakers or not, the reality is that those who are caught committing crimes will serve their time to society, not to shareholders. While I’m not going to begrudge anyone from buying GEO stock, I think it’s helpful to at least be honest about the situation.
Anyways, GEO represents one of the few times that Burry recognized his own mistakes and cut his losses. In Q4 2020, he initiated a bullish position, but one quarter later he sold out of it entirely. Generally speaking, it’s been the right move.
So let that be a lesson to you — sometimes, you got to know when to call it quits.
Overvalued Stocks on Michael Burry’s List: Allstate (ALL)
Among the high-profile overvalued stocks that Michael Burry sold, Allstate is a perplexing one. True, the circumstances regarding the Covid-19 pandemic put a bit of a dark cloud over the insurance sector. At the same time, the historical trend for insurance companies has been to increase profitability during periods of rising interest rates.
And rising rates are exactly what the Federal Reserve is eyeballing to combat inflation, at least from the mainstream narrative. Therefore, it seems the better bet is to stay the long course with Allstate.
Further, there’s an irony that’s inescapable. Back when the coronavirus first devastated us, S&P Global Market Intelligence reported that “Insurers are expected to be resilient in the face of a downturn especially because, in part, there were not as many systemic imbalances as there were during the financial crisis in 2008.”
Wasn’t systemic imbalances the very thing that caught Burry’s attention during the last housing boom and bubble? So why tap that same storyline when everybody today knows what’s up?
Whatever the reasoning, Burry hasn’t been too hot on ALL stock. So far, he hasn’t been right on this one.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.