Burry’s Strong Buys - MELI, ADBE, FISV, LULU, ZTS, VEEV, PYPL / Short TSLA, PLTR

Key Concepts

• Falling Knives: A strategy of buying stocks that are experiencing sharp, rapid price declines, under the assumption that they are nearing a "bottom."
• Intrinsic Value: The calculated fair value of a company based on future earnings potential, often compared against current market price to determine if a stock is undervalued.
• P/E Ratio (Price-to-Earnings): A valuation metric used to determine if a stock is expensive or cheap relative to its earnings.
• Delta of the Delta: The concept that a slowing growth rate (deceleration) leads to a contraction in valuation multiples, creating a "double whammy" for investors.
• Buybacks: A company repurchasing its own shares to reduce supply, theoretically increasing the value of remaining shares, provided the business remains strong.
• AI Super Bubble: A term used to describe the perceived overvaluation of AI-related stocks (e.g., Nvidia, Palantir, Tesla) that Michael Burry is currently shorting.

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Analysis of Michael Burry’s Recent Portfolio Moves

The video examines Michael Burry’s recent investment activity, characterized by "catching falling knives"—investing in high-volume, declining stocks where the shareholder base is rotating. The core thesis is that high trading volume during a decline may signal a bottoming-out process.

1. Key Stock Positions

• Mercado Libre (MELI): Despite 20–40% growth rates, the stock has underperformed over five years. Burry sees value as the P/E ratio has compressed from ~150 to 43. The risk remains potential capital outflows from Latin American markets.
• Adobe (ADBE): Currently trading at a P/E of 11 with 8–10% growth. The investment case rests on Adobe’s "moat" as an enterprise standard for digital design and its copyright-safe AI (Firefly). The risk is a potential deceleration in growth, which would lead to valuation contraction.
• Fiserv (FI): A fintech company with a new CEO and a target EPS of $12 by 2028. If achieved, the current valuation represents a potential 3x return.
• Lululemon (LULU): Down significantly from its $500 highs. The thesis relies on a turnaround in North American sales and the arrival of a new CEO in September. The speaker notes that fashion retail is inherently volatile and prone to trend cycles.
• PayPal (PYPL): Trading at a P/E of 8 with aggressive buybacks. The speaker expresses skepticism, noting that buybacks are only value-accretive if the underlying business is growing; otherwise, they are "destructive" if the company is in long-term decline.
• Zoetis (ZTS): A pharmaceutical play with stable growth and a strong pipeline, though the speaker admits limited expertise in the pharma sector.

2. The "Short" Strategy

Burry maintains a short position against the "AI Super Bubble," specifically holding puts on Nvidia, Tesla, Palantir, and the Nasdaq 100. The speaker interprets these shorts as a hedge: if the broader market crashes, the gains from these shorts provide liquidity to purchase more of his long-term value positions at lower prices.

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Methodologies and Frameworks

• Intrinsic Value Analysis: The speaker emphasizes using an intrinsic value table to calculate potential returns based on varying growth rates (e.g., 8% vs. 12%). He argues that small changes in growth expectations are the primary drivers of massive price swings (e.g., Adobe moving from $600 to $200).
• Behavioral Psychology in Investing: The speaker highlights that market sentiment is often reactive. When a stock price drops, negative commentary explodes, creating "negative momentum." Conversely, when a stock turns, the narrative shifts to growth potential.
• Critique of Wall Street Analysts: The speaker argues that analysts are "futile" because they consistently adjust price targets downward to follow the stock price rather than predicting the decline.

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Notable Quotes

• "When I'm negative on an investment, it doesn't mean that the business is going bankrupt." — Explaining that valuation contraction is often about the "delta of the delta" (slowing growth) rather than business failure.
• "A buyback implies that the business will be there stronger, better, and more powerful in the next 10 years. And that's missing with PayPal." — On the danger of using buybacks to mask a declining business.
• "Wall Street analysts are completely futile because their assessment of the price target just goes down and follows the stock price."

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Synthesis and Conclusion

The main takeaway is that Michael Burry’s strategy involves a high-conviction "barbell" approach: buying beaten-down, high-volume value stocks that have the potential for a 2x–3x return upon normalization, while simultaneously hedging against a broader market collapse via shorts on AI-inflated tech stocks.

The speaker concludes that while Burry’s picks are interesting, they carry significant risk. Investors must decide if these companies fit their personal risk tolerance and whether they believe the businesses will remain "stronger and more powerful" in the future. The speaker advocates for a more selective, steady approach—buying one high-quality business per year—rather than attempting to replicate Burry’s entire basket of "falling knives."