Fintech, retailers, and EVs: Burry's bets on beaten-down stocks

Short seller Michael Burry continues to look for investment opportunities among beaten-down stocks. He has added to his investments in retailers, despite record-low consumer sentiment, and bought shares of a Chinese EV maker. Burry is also betting on payment companies whose stocks have fallen sharply over the last several years. He is paying particular attention to a potential private equity buyout of Global Payments, arguing that a deal could validate valuations elsewhere in the sector and make other companies more likely takeover targets. Even so, he still considers some of their valuations to be rich.

Burry sees an investment opportunity in Fiserv, despite pressure on the stock following a loss of confidence in the previous management, which issued overly optimistic growth forecasts and provided insufficient transparency in its financial reporting. In a potential takeover, Burry values Fiserv at $100-120 per share versus its market price of $50.02 per share. From a minority shareholder’s perspective, however, Fiserv is overvalued by his calculations: its current price is 60% above the level at which he would expect to earn a 15% annualized return. Burry maintains a full position in Fiserv and notes that insiders are buying the beaten-down stock.

Burry sees PayPal as a particularly attractive "buy." At around $50 per share, the stock is trading 20% below the price at which he calculates an investor could earn a 15% annualized return. Burry already holds PayPal but does not disclose the precise size of his position.

Burry considers Global Payments, a fintech that provides payment acceptance software and services, to be overvalued. As far back as January, he criticized the company for acquiring businesses that failed to generate adequate returns. According to Burry, Global Payments posted a net loss of almost $1 billion over the last 12 months, even though it reports substantial profits after excluding a range of expenses.

Global Payments shares rose as much as 18% following a Financial Times report of a potential private equity buyout and traded at $96.84 apiece on Friday. Burry acknowledges that new owners could cut costs and make acquisitions on more favorable terms. Even allowing for those possibilities, however, he values Global Payments at just $45-60 per share. By his calculations, buying a controlling stake at that price could generate a 15% annualized return, while the current market price implies an expected return of around 10% for the buyer.

Burry also sees fintech Fidelity National Information Services as overvalued. Assuming it continues its unsuccessful acquisition strategy, he values the company at $18-26 per share in a potential buyout. As of the close on Friday, the stock traded at $38.55 per share, 45-100% or more above Burry’s valuation range.

Burry reported adding to his investments in Chinese stocks. He bought more shares of EV maker BYD and more call options on online retailer JD.com expiring in 2029. Both stocks have made little headway since Hong Kong’s Hang Seng index peaked in 2021. Burry, however, thinks JD.com is significantly undervalued. The company’s cash net of debt totals $24.3 billion, equivalent to 71% of its market capitalization. Stripping out that cash, the market values JD.com’s operating business at around three times annual owner earnings, Burry notes. The stock also trades at half the price at which he would expect an investor to earn a 15% annualized return. Moreover, Burry believes Hong Kong offers other undervalued companies whose financial performance has far outpaced their stocks for years.

“Hong Kong’s tech stocks are straining to gasp for air. They’ve been pushed underwater so long and so deep. Despite continued solid profitability, even record profitability in some cases. Multiples are compressed severely once again,” Burry writes.

The short seller continues to buy U.S. retailers whose stocks have fallen sharply over the last two years. On Friday, he added to his position in long-dated call options  on Sprouts Farmers Market expiring in 2028 with strike prices in the low $100s per share. The grocery chain’s stock traded at $47-49 per share on Friday, roughly the price at which Burry calculates an investor could expect a 15% annualized return.

He also continues to hold companies he describes as sector leaders that, in his view, remain highly profitable, use capital efficiently, and have durable competitive advantages, including footwear makers Deckers and Birkenstock, athletic apparel brand lululemon, and toy store chain Build-A-Bear. Sprouts meets those criteria to a lesser extent, Burry believes, but has carved out a niche with stores selling fresh produce and organic products. That positioning, he argues, partly explains its high returns on capital.

“As I have mentioned before, bombed out retail names were some of the best performing stocks during the 2000-2005 post-bubble period. Understandable, cheap, staple-ish, nowhere-close-to-TMT etc.,” Burry concluded.