Jump to content

Mike Burry's 13F Revisited


Graham Osborn
 Share

Recommended Posts

Working my way through these:

 

https://www.sec.gov/Archives/edgar/data/1649339/000114036116052634/xslForm13F_X01/form13fInfoTable.xml

 

Anyone who is long/ short any of these stocks and can reel off the high-level, please inform.  Given my allergy to debt at this point in the credit cycle, I am finding some of these picks not that compelling.  On TLRD for ex, I can't help noticing the stock crumped right around the same time as VRX and for similar (debt-related) reasons.  TBPH seems like your typical biotech, i.e. not much of a conservative investment.  Hopefully some more informed discussion..

Link to comment
Share on other sites

Forbes also published something recently as well and I'm slightly sad as I see a few of his positions go up before I've had time to research them enough :(

 

I've been digging into NXRT and TLRD (formerly Men's Warehouse)

 

NXRT:

  • Burry's largest position
  • REIT focused on rehabbing multifamily Class B properties in Texas and South/South East
  • 10x 2016 AFFO (~1.26 - 1.30/share)
  • Getting ~20% IRR on rehabbing, clear re-investing opportunity and at least 3 years before they finish projects
  • Just a small kicker, announced two building sales in Q1 that are a footnote in the 10K, should see a nice NI bump this quarter
  • Management buying stock hand-over-fist

 

TLRD

  • Stock went to the dumps after it took over Joseph A. Bank via debt and basically wrote off the entire acquisition
  • Core business, Mens Warehouse continues to be very strong, post SSS over past few quarters/years
  • Transitioning Tuxedo Shops from stand-alone stores to store-within-a-store with Macy's, should cut costs, while hopefully maintain margins
  • Pays a nice dividend, (was like 6% at $16... idk how much now).
  • If you told me nothing about the history of the company, balance sheets looks like a LBO. Strong core business and seems like it should be able to pay down debt. Joseph A. Bank losses should hopefully stop

Link to comment
Share on other sites

Ships passing in the night, just pitched Community Health to you in the short thread, but this IS the appropriate place to pitch it.

 

So Community Health is kind of a piece of crap, and management badly missed their targets.  They also are deeply in love with adjusted ebitda as a metric, but of course the adjustments never include their very high annual capex needs.

 

But, here's my very rough breakdown -

 

They currently have an enterprise value of 19 billion, which is 2 billion of equity and 17 billion of debt. Their adjusted ebitda last year was 2.8 billion.  Their actual cash flow from operations was about 1.05 billion last year, and they had capex spend of about 950 million - so real cash flow of about 100 million. Not great! But, they did have 1.8 billion of cash flow from operations in 2014, and they had a sort of kitchen sink year last year with writing off delinquent accounts and various other problems. They're forecasting ebitda improvements of about 500 million this year. Who knows if that will come through.

 

But I'm particularly interested because they are spinning off a small group of rural hospitals called Quorum in late April. Quorum has They delayed a bit when the HY market seized up, but they finally got the funding.  Quorum has proforma adjusted ebitda of about 237 million.  They're loading it with 1.2 billion of debt.  If Quorum trades with an 8 ev/ebitda, then Quorum will have an equity value of about 400 million.  Meanwhile CYH is getting 1.2 billion in cash. They've said that they'll use it for debt repayment.  If they do, then that should lower their interest costs by about 100 million a year.  Quorum's CFO was about 40 million a year, so that should add 60 million to cash flow from operations.  Their cash flow from operations is then up to 150 million without any improvements. If you believe that they can even add another 50 million of cash flow from operations through 2016 improvements, then they'll have a 200 million dollar free cash flow for the equity stub.  At that point, it seems reasonable that Community Health equity should be worth 2 billion (at a 10% fcf yield) and Quorum should be worth 400 million, which is about 20% higher than today.  At that point, if they are successful on any of their various synergies, the equity stub that is CYH should increase in value quite quickly (it was trading at 60 early in 2015 and is now at 18).  For example, pre 2015, the cash flow from operations from CYH/HMA (their 2014 merger) were consistently above 1.5 billion, with capex in the 1-1.1 billion range. If they can get back to that, then the free cash flow should be about 400 million, the equity stub should be worth 4 billion, which would make CYH a double.

 

 

There's also at least one nice long term trend. Community Health's biggest problem is self payers. Currently, only 43% of their patients are in states with medicaid expansion access (they're primarily located in southern states), but slowly, slowly, republican states are becoming more willing to accept medicaid.  (i.e. even Alabama is taking it more seriously - http://www.montgomeryadvertiser.com/story/news/politics/southunionstreet/2015/11/14/medicaid-expansion-alabama-next-big-battle/75738568/)

 

And 2016, a presidential year with presidential turnout, could make state legislatures, like Florida, quite a bit more blue.

 

Here's a decent, albeit promotional presentation, from last Q - http://www.chs.net/wp-content/uploads/2016/02/Q4-2015-Investor-Presentation.pdf. I do like that they're relatively honest about CFO / capex even with all the ebitda talk.

 

I think the LEAPS options provide some very nice potential - the 2018 25s are at a mark of about 2.70.

 

Also, on the Burry 13f, I like Nexpoint. 6% reit yielder with multi-unit apartment buildings. From what I've read, it appears 50% underrated versus peers (http://clarkstreetvalue.blogspot.com/2016/02/nexpoint-residential-trust-update.html).  Seems like management is quite smart. Agree with winjitsu's comments.

 

Still don't understand the financial institutions though.

Link to comment
Share on other sites

The TLRD one seems tough to me. I can understand why the company wrote off Jos. A Bank. The psychological effects of taking away people's discounts (discounts of buy 1 suit get 3 free) likely may have killed that side of the company. It's funny that they didn't learn from JC Penny and Ackman. At this point you have a levered Men's Warehouse with an option of whether or not their Tuxedo concept will work in Macy's. If you feel they haven't killed Jos. A Bank it could be very cheap.

Link to comment
Share on other sites

The TLRD one seems tough to me. I can understand why the company wrote off Jos. A Bank. The psychological effects of taking away people's discounts (discounts of buy 1 suit get 3 free) likely may have killed that side of the company. It's funny that they didn't learn from JC Penny and Ackman. At this point you have a levered Men's Warehouse with an option of whether or not their Tuxedo concept will work in Macy's. If you feel they haven't killed Jos. A Bank it could be very cheap.

 

I can understand the attraction of the company just because when mentioning MW brings such a visceral negative reaction(mostly to those who haven't spent the time actually looking at the numbers), my interest as a contrarian increases. There's definitely optionality with Jos. A Bank too, as I think the market effectively values it at 0, so any signs of operating profit would really lift the stock. Curious to see what the numbers look like once they shut down all the low performing stores.

 

That being said, it was the current management that advocated for the merger, which was disastrous. I've read advice once on restructuring with incumbent managers -- managers don't suddenly become better capital allocators. And this is retail, so definitely a pass for me (I actually was at the PSQ AGM when they brought out Ron Johnson -- oh what fun).

Link to comment
Share on other sites

TBPH - lots of buzz on this pick recently.  I don't see a lot here distinguishing it from the typical biotech crapshoot.  Net income last year was -182M vs cash of 112M.  I look for at least 3-5 years at the current burn rate before another dilution event would be mandatory.  This requirement is virtually never satisfied since the company will generally ramp up R&D or pay themselves a bonus if there is "cash sitting idle."

 

I admit the SOP or optionality models that biotech analysts use have not borne themselves out in my experience.  For me, pipeline assets or cash below 3-5 years do not provide the margin of safety I am looking for.  Vibativ sales are erratic at best historically.  Will the company need to do another capital raise?  It seems reasonably likely.  The capital markets for early stage biotech are rapidly freezing up (eg Theranos).  That leaves me wondering why this shouldn't be another flash in the pan.  It doesn't matter how great your pipeline is if you're out of money and no one has the money to buy you.

 

Obviously I haven't delved deeply here and my reasoning deals more with my general sector view.  Perhaps there are some near-guaranteed milestone payments that make the cash position effectively much better.  IMO though MPs are always more contingent than understood.  Burry may well have some elegant thesis here, but I don't really have a basis at this point to dig deeper.

Link to comment
Share on other sites

Ships passing in the night, just pitched Community Health to you in the short thread, but this IS the appropriate place to pitch it.

 

So Community Health is kind of a piece of crap, and management badly missed their targets.  They also are deeply in love with adjusted ebitda as a metric, but of course the adjustments never include their very high annual capex needs.

 

But, here's my very rough breakdown -

 

They currently have an enterprise value of 19 billion, which is 2 billion of equity and 17 billion of debt. Their adjusted ebitda last year was 2.8 billion.  Their actual cash flow from operations was about 1.05 billion last year, and they had capex spend of about 950 million - so real cash flow of about 100 million. Not great! But, they did have 1.8 billion of cash flow from operations in 2014, and they had a sort of kitchen sink year last year with writing off delinquent accounts and various other problems. They're forecasting ebitda improvements of about 500 million this year. Who knows if that will come through.

 

But I'm particularly interested because they are spinning off a small group of rural hospitals called Quorum in late April. Quorum has They delayed a bit when the HY market seized up, but they finally got the funding.  Quorum has proforma adjusted ebitda of about 237 million.  They're loading it with 1.2 billion of debt.  If Quorum trades with an 8 ev/ebitda, then Quorum will have an equity value of about 400 million.  Meanwhile CYH is getting 1.2 billion in cash. They've said that they'll use it for debt repayment.  If they do, then that should lower their interest costs by about 100 million a year.  Quorum's CFO was about 40 million a year, so that should add 60 million to cash flow from operations.  Their cash flow from operations is then up to 150 million without any improvements. If you believe that they can even add another 50 million of cash flow from operations through 2016 improvements, then they'll have a 200 million dollar free cash flow for the equity stub.  At that point, it seems reasonable that Community Health equity should be worth 2 billion (at a 10% fcf yield) and Quorum should be worth 400 million, which is about 20% higher than today.  At that point, if they are successful on any of their various synergies, the equity stub that is CYH should increase in value quite quickly (it was trading at 60 early in 2015 and is now at 18).  For example, pre 2015, the cash flow from operations from CYH/HMA (their 2014 merger) were consistently above 1.5 billion, with capex in the 1-1.1 billion range. If they can get back to that, then the free cash flow should be about 400 million, the equity stub should be worth 4 billion, which would make CYH a double.

 

 

There's also at least one nice long term trend. Community Health's biggest problem is self payers. Currently, only 43% of their patients are in states with medicaid expansion access (they're primarily located in southern states), but slowly, slowly, republican states are becoming more willing to accept medicaid.  (i.e. even Alabama is taking it more seriously - http://www.montgomeryadvertiser.com/story/news/politics/southunionstreet/2015/11/14/medicaid-expansion-alabama-next-big-battle/75738568/)

 

And 2016, a presidential year with presidential turnout, could make state legislatures, like Florida, quite a bit more blue.

 

Here's a decent, albeit promotional presentation, from last Q - http://www.chs.net/wp-content/uploads/2016/02/Q4-2015-Investor-Presentation.pdf. I do like that they're relatively honest about CFO / capex even with all the ebitda talk.

 

I think the LEAPS options provide some very nice potential - the 2018 25s are at a mark of about 2.70.

 

Also, on the Burry 13f, I like Nexpoint. 6% reit yielder with multi-unit apartment buildings. From what I've read, it appears 50% underrated versus peers (http://clarkstreetvalue.blogspot.com/2016/02/nexpoint-residential-trust-update.html).  Seems like management is quite smart. Agree with winjitsu's comments.

 

Still don't understand the financial institutions though.

 

Hi DC, thanks for the analysis.  I guess I haven't really been able to establish from personal experience that a certain FCF or EBITDA multiple should be normative.  What a reasonable multiple relative to the sector is today - that is known.  What it may be tomorrow - that is unknown.

 

I guess what I don't like about CYH is they are a death triad (stepwise rev growth, stepwise tbook decline, stepwise LT debt growth).  The LT debt vastly eclipses the MC of the company - the MC fell during the VRX investment grade shakeup (TLRD did also btw for related reasons) but the EV barely budged.  This tells me the MC could just as easily be obliterated as explode depending on what investment grade does next.

 

Again, I apologize that my analysis is less quantitative than yours.  I really have become terribly lazy this year because what I see is macro overriding the fundamentals.  Each stock has a storyline, but if you co-plot stocks like CYH and TLRD the charts nearly align.  Does that make any sense ? :).  Branson once said he distrusted numbers relative to his gut because the numbers could be manipulated to justify a certain conclusion.  For me, my assessments of "big upside" or "big downside" have been more useful than my predictions for a company's specific forward cash flows and multiples.  I do believe there are times when markets are driven by these multiples, but I also believe there are times when they are not.

Link to comment
Share on other sites

The TLRD one seems tough to me. I can understand why the company wrote off Jos. A Bank. The psychological effects of taking away people's discounts (discounts of buy 1 suit get 3 free) likely may have killed that side of the company. It's funny that they didn't learn from JC Penny and Ackman. At this point you have a levered Men's Warehouse with an option of whether or not their Tuxedo concept will work in Macy's. If you feel they haven't killed Jos. A Bank it could be very cheap.

 

I agree that TLRD seems a victim of acquisition syndrome.  The company took on a pile of debt to buy JOSB which is why VRX nuked the stock last fall.  If you notice, the stock was afforded higher EV multiples leading up to and immediately after the acquisition, but its current EV/ Rev is much closer historic levels.  JOSB is not a free option because the company needs cash flows from both businesses to pay off debt in a tightening environment.  Again, my 15-minute gestalt may be wrong, but I am seeing a fairly valued business with short-term credit risk.  I guess if they do a big turnaround as JOSB and pay down the debt that picture could change but it doesn't seem like a near-term catalyst.

 

For perspective, I am short M.

Link to comment
Share on other sites

  • 1 month later...

I wonder what the story is with these filings. It's possible that there's a large (?) part of the fund that is in investments that don't need to be in the filing. So possibly we only see the rather irrelevant piece of the iceberg.

 

Anyone on the inside who knows more about the fund and whether we are seeing a reasonably big part of it? Is there a large part in cash, non US securities, private assets, etc?

Link to comment
Share on other sites

Looking at the difference between the February 13 f and the most recent April 13f, it looks like Scion reduced its equity positions from $79,939 million to $51,092 million. That's a 36% move of assets to cash or short positions or something else???

Link to comment
Share on other sites

Looking at the difference between the February 13 f and the most recent April 13f, it looks like Scion reduced its equity positions from $79,939 million to $51,092 million. That's a 36% move of assets to cash or short positions or something else???

 

I don't think it's possible to get the full story based only on the 13F filings. Ultimately there are a lot of different things that could be going on, so I would advise against drawing actionable conclusions.

Link to comment
Share on other sites

I'm not taking any actions based on Scion's 13fs, just making observations. It's a pretty large change whatever the reason. Burry is an inspiration to me and I can't help but look for any bit of info on how his mind works and what he is up to. Who knows, perhaps we will read about his current actions in another book some time in the future.

Link to comment
Share on other sites

Latest 13f is out - http://www.sec.gov/Archives/edgar/data/1649339/000114036116065328/xslForm13F_X01/form13fInfoTable.xml

 

Financials are all gone, looks like he has shrunk his portfolio considerably.

 

The AMGN pick is dumb.  AMGN's top products all have low cost competitors nipping at their heels and the company has over 30B of debt.  10x EBITDA is way overkill for this pick this far in the cycle and with pricing reform in the works although I wouldn't go so far as to call AMGN a good short by any stretch of the imagination.  They are shifting to a stalwart IMO.

 

I'm not surprised he owns AAPL; if you look at the balance sheet and EBITDA multiple you pretty much have to own it as a value investor.  Luckily I am not a value investor in the classic sense to I don't feel compelled to follow :) IPhone sales and margins mirrored the economic recovery which is now flagging, and I expect now will be the time where customers tighten their belts and diversify into cheaper brands or models.  I doubt whether AAPL has the leadership at present to achieve significant returns on capital from their large cash hoard.  They've become like Xerox - bloated and cautious to invest in an uncertain future.  There may be a buy point, but I don't see it coming anytime soon and certainly not before iProduct sales start to fall off the cliff.

 

I do think the move out of longs is significant.  It dovetails nicely with what we said earlier that the financial institutions where probably post-recession QE plays held for a period of years. 

 

I maintain that TLRD and HCA make no sense at this point in the cycle.  Their risks are much the same as financials.

 

Burry has historically been one to exercise directional bets.  As such, individual picks should have meaning without knowing the whole portfolio.  I don't, for example, worry that AMGN is some kind of pair trade.  But if you wanted to know how bearish he was or what specifically he was bearish against, the 13F won't help much.  I hope someday the SEC requires short positions to be disclosed, although in Burry's case this wouldn't be that helpful since he prefers to implement bearish bets in other ways.

Link to comment
Share on other sites

  • 4 weeks later...

Latest 13f is out - http://www.sec.gov/Archives/edgar/data/1649339/000114036116065328/xslForm13F_X01/form13fInfoTable.xml

 

Financials are all gone, looks like he has shrunk his portfolio considerably.

 

The AMGN pick is dumb.  AMGN's top products all have low cost competitors nipping at their heels and the company has over 30B of debt.  10x EBITDA is way overkill for this pick this far in the cycle and with pricing reform in the works although I wouldn't go so far as to call AMGN a good short by any stretch of the imagination.  They are shifting to a stalwart IMO.

 

I'm not surprised he owns AAPL; if you look at the balance sheet and EBITDA multiple you pretty much have to own it as a value investor.  Luckily I am not a value investor in the classic sense to I don't feel compelled to follow :) IPhone sales and margins mirrored the economic recovery which is now flagging, and I expect now will be the time where customers tighten their belts and diversify into cheaper brands or models.  I doubt whether AAPL has the leadership at present to achieve significant returns on capital from their large cash hoard.  They've become like Xerox - bloated and cautious to invest in an uncertain future.  There may be a buy point, but I don't see it coming anytime soon and certainly not before iProduct sales start to fall off the cliff.

 

I do think the move out of longs is significant.  It dovetails nicely with what we said earlier that the financial institutions where probably post-recession QE plays held for a period of years. 

 

I maintain that TLRD and HCA make no sense at this point in the cycle.  Their risks are much the same as financials.

 

Burry has historically been one to exercise directional bets.  As such, individual picks should have meaning without knowing the whole portfolio.  I don't, for example, worry that AMGN is some kind of pair trade.  But if you wanted to know how bearish he was or what specifically he was bearish against, the 13F won't help much.  I hope someday the SEC requires short positions to be disclosed, although in Burry's case this wouldn't be that helpful since he prefers to implement bearish bets in other ways.

 

Can you expand the comment on Amgen a bit? I agree the EV/EBITDA multiple is high, but which products do you think are most in danger? Enbrel has patent protection until 2029 and I believe they have 34 bil. in cash which kind of covers their debt. Do you think the biosimilars and other drugs in development won't provide sufficient growth?

Link to comment
Share on other sites

  • 1 month later...
  • 2 months later...

His largest holding (COTY) makes no sense to me whatsoever on a traditional valuation metric.

So I've done a bit of further reading on COTY to try and understand what's going on. I found a good article on Seeking Alpha.

 

http://seekingalpha.com/article/4008144-look-procter-gamble-company-coty-inc-exchange-offer

 

This looks like one that is definitely worth monitoring for now. It appears that a lot of PG shareholders who received COTY stock have been dumping it, causing the share price to fall. Relative to the market, it looks too expensive to me. But if it got down to about $16, then I could see the potential for this to double if management met the expectations they set out when the merger was consummated.

 

COTY investor presentation - http://phx.corporate-ir.net/External.File?t=1&item=VHlwZT0yfFBhcmVudElEPTUyMzY2Njl8Q2hpbGRJRD02NDQ4MDI=

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...