After Nearly Dumping His Entire Portfolio, "The Big Short's" Michael Burry Just Bought 2 Abandoned Stocks Down at Least 40% This Year

Michael Burry's Scion Asset Management, after largely liquidating its portfolio in Q1 to presciently avoid market declines, turned bullish in Q2 by taking significant contrarian long positions in UnitedHealth (UNH) and Lululemon (LULU), both of which have seen their stock prices fall over 40% year-to-date. For UnitedHealth, despite a substantial 2025 EPS guidance cut from approximately $30 to $16 and ongoing DOJ scrutiny, Burry's investment, alongside other notable hedge funds, suggests a belief in the company's long-term pricing power and financial resilience. Similarly, for Lululemon, facing increased competition and a cautious consumer, Burry's bet at a ~13.5x forward earnings multiple indicates confidence in its strong balance sheet and brand to navigate near-term headwinds for future recovery.

Analysis

Following a prescient Q1 portfolio liquidation that sidestepped April's market downturn, Michael Burry's Scion Asset Management reversed course in Q2, adopting a bullish contrarian strategy by initiating significant positions in UnitedHealth (UNH) and Lululemon (LULU). Both companies have experienced substantial stock declines, down approximately 41% and 47% year-to-date, respectively. For UnitedHealth, the investment, which includes 20,000 shares and 350,000 shares via call options, comes despite severe headwinds, including a drastic 2025 adjusted EPS guidance cut to $16 from nearly $30 due to a projected $6.5 billion increase in medical costs, and an ongoing DOJ investigation. The thesis, echoed by other institutional buyers, appears to be a bet on the company's long-term pricing power as the largest U.S. insurer, supported by a healthy free-cash-flow yield of over 9% and a ~3% dividend yield. Similarly, Scion's purchase of Lululemon shares and call options confronts headwinds from competition and cautious consumer spending. However, with the stock trading at a modest ~13.5 times forward earnings and the company holding a debt-free balance sheet with $1.3 billion in cash, the investment suggests a belief that near-term challenges are fully priced in, creating a favorable entry point for a strong brand poised for eventual recovery.

Key Decisions for Investors

• Investors could consider these contrarian plays in UNH and LULU, but must be prepared for volatility given the significant fundamental and macro headwinds that have caused the initial stock declines.
• For UnitedHealth, the key variables to monitor are any developments from the DOJ investigation and management's execution in controlling the sharply higher medical cost outlook for 2025.
• For Lululemon, the investment thesis hinges on the brand's resilience and the company's ability to navigate a competitive and cautious consumer environment, with the debt-free balance sheet providing a significant cushion.
• The substantial use of call options by Scion suggests a belief in a time-bound, sharp recovery, a higher-risk strategy that could be considered for leveraged upside on these beaten-down names.