Burry buys back 'favorite' Lululemon after a selloff. What else is he buying?

Michael Burry, the investor inspiring "The Big Short," has bought back Lululemon, the maker of premium athletic apparel, footwear, and accessories, a month after unexpectedly selling his entire stake. He had called Lululemon one of his “favorite” positions but cashed out in early October for tax reasons.

“I bought back into Lululemon on the fall today. The stock is down today almost 4% to the $106s, and that is good enough for me,” Burry wrote on his Cassandra Unchained blog on Wednesday. Lululemon shares closed Wednesday at $107.50 apiece, down just under 3% for the session.

Burry believes the market is undervaluing Lululemon because the new management has yet to fix longstanding problems with the company’s marketing strategy and messaging. He sees those problems as temporary and remains confident in Lululemon’s ability to develop new products. Burry stressed that his assessment of the company’s outlook had not changed.

In June, Burry wrote that he saw room for long-term gains in Lululemon because the company still had a strong brand, remained profitable, carried virtually no debt, and had about $1.5 billion in cash at the time. He calculated then that an investment in Lululemon could return about 18% annually over 15 years.

In September, after Lululemon reported weak results and the management cut its revenue and profit guidance, Burry acknowledged that the company was underperforming his expectations. He still considered the stock undervalued and an attractive investment.

On October 6, however, Burry unexpectedly said he had sold all his Lululemon shares. He attributed the move to tax considerations, as he wanted to realize a loss to offset taxable gains from other trades. As a temporary substitute, he bought shares of footwear maker Deckers, which he saw as similar to Lululemon, with plans to reenter Lululemon once the tax restriction expired. On Tuesday, Burry said he was still waiting for the right moment to do that and might keep his Deckers stake as well.

Lululemon shares are down about 50% year to date, according to Yahoo Finance data. Over the last month, the stock has recovered most of the ground it lost in September’s plunge, which followed a cut to the revenue guidance.

In Wednesday’s post, Burry also said he bought more shares of Latin American e-commerce platform MercadoLibre at less than $1,500 apiece and added to his stake in Sprouts Farmers Market, a grocery chain that sells fresh produce and organic foods, at around $48 per share. He also increased his stake in Adobe, betting that the Photoshop developer would benefit from forcing users with “perpetual” licenses onto paid subscriptions. Burry said he recently had to pay for a subscription himself after his Adobe Acrobat 2020 software stopped working.

Burry also increased his positions in fintech PayPal and Chinese online retailer JD.com and bought more shares of Brazilian miner Ero Copper on a pullback. He likes the company’s results after S&P recently upgraded its credit rating to BB-, and he expects demand for copper to rise as infrastructure is upgraded to support AI development.

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