Longs from The Big Short

03/01/2016 9:00 am EST


Marshall Hargrave

Contributing Editor, Wyatt Investment Research

Michael Burry is the hero profiled in the book and film The Big Short. His hedge fund, Scion Asset Management, just submitted its first 13F filing to the SEC, revealing which stocks the fund was invested in as of yearend, notes Marshall Hargrave in Daily Profit.

Burry considers himself a deep value investor at heart. He's said before that he likes to go after "ick" stocks. And indeed, Burry hasn't done that well year-to-date if he still owns the stocks listed in the 13F filing. All 14 of the stocks are down so far in 2016.

Burry has a big bet on NexPoint Residential Trust (NXRT), which was his largest holding heading into 2016. NexPoint makes up 11% of Burry's portfolio.

NexPoint is a real estate investment trust focused on multifamily real estate in the Southeast US. It's highly concentrated geographically, with Dallas, Texas, and Atlanta, Georgia, comprising over half of its market exposure. The REIT pays a 7% dividend yield.

The other key is that NexPoint is a highly leveraged REIT. Plus, it has an external management structure, which means that management's goals aren't always aligned with shareholders.

Now, the silver lining is that activist investors have been swarming the externally managed space, looking to protect shareholders.

The assets NexPoint has are solid, but with the balance sheet overhang, the best bet for shareholders is a buyout.  

Burry also has two big bets on tech giants. His second-largest holding is Apple (AAPL). Close to 10% of his portfolio is invested in the iPhone maker.

This comes as both Carl Icahn and David Einhorn's Greenlight Capital were trimming their Apple stakes during the fourth quarter.

But Burry also has a big bet on International Business Machines (IBM), with 8.6% of the fund invested in Big Blue. 

This is a Warren Buffett favorite as well, but the stock has fallen 16% in the last year and now trades at less than 10 times earnings.

Burry's fund owns more than 1% of biotech company Theravance Biopharma (TBPH). It's Scion's third-largest holding.

Theravance focuses on infectious diseases and diseases of the lung and gastrointestinal tract. It doesn't generate any income, having lost over $200 million over the last 12 months. Trading at 15 times sales, it certainly looks like a risky biotech bet.

Burry also has a big bet on solar through his fund's investment in First Solar (FSLR). As of the end of 2015, 8.3% of Scion's portfolio was invested in the company.

First Solar makes solar panels and also has a project management business that handles engineering and construction for power developers and power system owners.

Although it's trading at just 11 times earnings, it's still not on the cheap side in the solar industry.

Michael Burry made his fortune by shorting the subprime mortgage market. Now he's going long on some 'ick' stocks. It will be interesting to see how all this plays out for The Big Short hero in 2016.

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