What is immediately apparent about this portfolio, apart from the fact that it contains only a handful of holdings, is the fact that most of them are consolidated in the retail sector.
This is, in many ways, typical of Burry’s investing style. He has described himself as a contrarian investor before with a preference for buying deeply distressed securities trading at bargain-basement prices. For example, in an MSN Money article in 2000-01, he wrote:
“I prefer to buy within 10% to 15% of a 52-week low that has shown itself to offer some price support. That’s the contrarian part of me. And if a stock — other than the rare birds discussed above — breaks to a new low, in most cases I cut the loss…I also invest in rare birds — asset plays and, to a lesser extent, arbitrage opportunities and companies selling at less than two-thirds of net value (net working capital less liabilities)…I like to hold 12 to 18 stocks diversified among various depressed industries, and tend to be fully invested. This number seems to provide enough room for my best ideas while smoothing out volatility.”
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Portfolio speculation ” data-reactid=”23″>Portfolio speculation
I am not going to claim to know the exact reasons behind every one of Burry’s holdings, but it does look as if this is a sector-focused bet. He seems to have picked his favorite holdings in the depressed retail sector and invested across all of them to spread the risk while making the most out of the depressed prices on offer.
Scion owns three million shares of GameStop, giving it a 27.8% portfolio weight. Tailored Brands accounts for 21.2%, Sportsman is 14% and Bed Bath & Beyond comes in at 13.4%.
Bed Bath & Beyond is, without a doubt, one of the cheapest stocks in the retail sector. It is currently dealing at a forward price-earnings ratio of just 7.51 and is trading around a tangible book value of $15 per share. At the end of August, the stock was trading at around 50% of tangible book value.
It also offers a dividend yield of 4.4% at the time of writing and trades at a price to free cash flow ratio of 7.3.
Tailored Brands appears to offer much more value. The stock is currently trading at a forward price-earnings ratio of 3.5 and an EV/EBITDA ratio of 4.9. Considering the fact that sales at this company have fallen consistently for the past few years, you could argue that the business deserves a low multiple. However, this multiple does offer the potential for a substantial rally if the stock’s fortunes improve. Perhaps that’s what Burry is betting on here.
Then there’s Sportsman. Once again, this stock is cheap, but it is not as cheap as the other two companies profiled above. It is currently dealing at a price-earnings ratio of 12.3 and a price to free cash ratio of 4.4. It also trades at an enterprise value to Ebitda ratio of 9.3.
Unlike the other two retailers profiled above, this sporting goods retailer is expected to report earnings growth over the next two years, so maybe this holding could be an attempt by Burry to hedge his bets on the rest of the sector. It certainly deviates from his trend to buy what looks to be a relatively expensive business compared to the rest of the portfolio.
Sportsman’s performance has undoubtedly been impressive, considering the rest of the retail sector’s performance over the past 12-months. Shares in the retailer are up 67% year to date.
Disclosure: The author owns no stocks mentioned.
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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="This article first appeared on GuruFocus.
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