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Michael Burry’s Big Bet on Facebook Still Has Legs
Stock Analysis & Ideas

Michael Burry’s Big Bet on Facebook Still Has Legs

Facebook (FB) is a stock that’s often viewed as one of the best value picks among mega-cap tech stocks. That’s for good reason. Currently, Facebook trades at a forward price-earnings multiple of 22.5-times. For its peer group, that’s cheap. (See Facebook stock charts on TipRanks)

Indeed, Facebook’s inherent value alongside its long-term growth potential has enticed many high-profile investors to jump aboard. One investor many have their eye on, Michael Burry, has bet big on Facebook this past quarter.

Mr. Burry is the founder and manager of Scion Asset Management. Many investors know of Michael Burry via his portrayal in The Big Short, as one of the first to bet on the 2008/2009 housing collapse. He’s a person many view as a visionary. Accordingly, when he makes big bets, investors sit up in their chairs and pay attention.

Indeed, Mr. Burry’s recent use of call options to bet on Facebook has appeared to worked out well for this investor. Let’s dive a bit into what Mr. Burry’s position looks like, and why he may have decided now is the right time to pounce.

Burry Choosing Calls as the Investment Vehicle of Choice for FB Stock

When investors are bullish on the long-term prospects of a given company, most choose to go “long” via buying shares in said company. However, when investors are extremely bullish on the near- to medium-term potential of a given stock, buying call options can be a much more lucrative bet. Call options provide investors with greater upside potential (but higher downside risk), and are generally considered to reflect extremely high conviction on an upside move materializing in short order.

This past quarter, it was revealed through 13-F filings that Mr. Burry’s fund had accumulated 550,000 call options on FB stock worth approximately $192 million. This made Facebook the number two holding of the fund, behind Alphabet (GOOG), at $195 million.

It’s important to note that these 550,000 call options were acquired some time during the past quarter. Accordingly, the exact timing of this bet is unknown. However, looking at the rather impressive year-to-date move we’ve seen in FB stock, it’s safe to say Burry has booked a nice profit on this trade, realized or not.

The timing of this trade is curious. It is also important to note that Facebook has been a favorite stock to trade for Mr. Burry in the past.

During the post-pandemic dip we saw in Q2 2020, Burry bet big on Facebook on the dip. At the time, Facebook calls took second place in Scion’s overall portfolio, as this famous investor bet big on a rebound in FB stock. He was right then, and it appears he’s right again.

Looking at his other top holdings, which included GameStop (GME), Goldman Sachs (GS), Booking Holdings (BKNG), and Alphabet (GOOG), investors can see why this guy is heralded as a genius in the investment community.

With Mr. Burry’s timing seemingly impeccable, investors are now forced to speculate as to whether Burry has sold out of his position, or whether he exercised these options. Given his previous moves in and out of calls in various stocks, it appears Scion’s upcoming 13-F filing will paint an interesting picture as to how bullish Mr. Burry is on Facebook’s prospects moving forward.

Is There Still Time to Capitalize on Facebook Stock?

As mentioned above, Facebook is a company that continues to trade at a relatively attractive valuation relative to its mega-cap tech peers. Accordingly, it’s a stock that has many value investors flocking to this growth stock for safety.

Indeed, such a view makes sense.

Facebook is among one of the top growth stocks among its mega-cap peers. The company’s forward revenue growth rate of 25% is incredible, given the company’s size. And Facebook’s profit margins are off the charts. The company produces gross margins of more than 80% currently. Thus, the amount of operating leverage with this stock is absolutely incredible.

Facebook’s ability to continue to monetize its platform has astounded investors who have held onto this name for the long haul. Indeed, all indications are that this level of high-quality, highly-profitable growth is likely to continue for some time.

As a long-term holding, Facebook stock now appears to be a holding catering to both growth and value investors. Accordingly, this is a stock many view as a unicorn in the markets today, and a relatively safe bet, given the margin of safety provided by Facebook’s robust growth rate.

What Analysts Are Saying About FB Stock

According to TipRanks’ analyst rating consensus, FB stock comes in as a Strong Buy. Out of 34 analyst ratings, there are 29 Buy recommendations, 4 Hold recommendations, and 1 Sell recommendation.

As for price targets, the average Facebook analyst price target is $386.19. Analyst price targets range from a low of $275.00 per share to a high of $460.00 per share.

Bottom Line

Few stocks match up to the long-term growth potential of Facebook right now. This is a company which trades at a relative discount to its peer group, offering some of the best fundamentals of its group.

Additionally, Facebook is a stock that Michael Burry likes. Enough said.

Long-term investors will do well to consider this stock on any dips. Indeed, it appears Mr. Burry is selective with his entry points, and it’s unclear as to whether he’s currently holding Facebook. That said, the fact that he’s stepped into this stock on numerous occasions in the past is an indication of Facebook’s risk-reward profile today.

Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

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