Market Insights: Uncovering Hidden Gems
Last week, on November 14, the financial world witnessed one of the most anticipated events of the fourth quarter – the filing of Form 13F by institutional investors with over $100 million in assets under management. This quarterly report provides a unique opportunity for investors to peek into the portfolios of Wall Street’s top money managers and uncover their investment strategies.
Following in the Footsteps of Wall Street’s Elite
While Warren Buffett’s investment decisions often grab the spotlight, another influential figure making waves in the financial world is Dr. Michael Burry, CEO of Scion Asset Management. Known for his contrarian approach, Burry gained fame for predicting the housing market collapse in 2007-2009, as depicted in the film “The Big Short” and Michael Lewis’ novel “The Big Short: Inside the Doomsday Machine.”
A Shift in Strategy: Betting on Industry Leaders
In a surprising move, Burry’s latest 13F filing reveals that he has been accumulating shares of three market-leading businesses in China – JD.com, Baidu, and Alibaba. These companies share a common theme: they are historically cheap, industry-leading businesses with strong growth potential.
Uncovering Value in China’s E-commerce Giants
Scion’s 13F shows that Burry purchased:
- 250,000 shares of JD.com, doubling his fund’s stake from June 30
- 50,000 shares of Baidu, increasing his fund’s stake by 66.7% from the midpoint of 2024
- 45,000 shares of Alibaba, increasing his fund’s position by 29% from the June-ended quarter
Why China Stocks Are Worth Considering
Despite the unpredictability of China’s regulators, these companies offer a compelling value proposition. Baidu, for instance, has dominated internet search in China, commanding strong ad pricing power. Alibaba and JD.com are poised to benefit from China’s growing middle class, with online retail sales still in its early growth cycle.
Treasure Chest of Cash
All three companies boast impressive cash reserves, with Alibaba holding approximately $57 billion in net cash, JD.com sitting on $30 billion, and Baidu having $18.3 billion. This liquidity enables acquisitions, innovation, and robust capital-return programs.
A Favorable Risk-Reward Profile
With the benchmark S&P 500 trading at a historically high forward price-to-earnings ratio of almost 25, shares of JD.com, Baidu, and Alibaba can be scooped up at attractive forward-year multiples of 8.2, 7.7, and 9.1, respectively. For contrarian investors like Burry, these China-based stocks offer a compelling risk-versus-reward profile.
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