The media is making a lot out of Scion Asset Management's latest filings, but don’t read too much into the chatter. Mr. Burry was right to be worried about a market correction in 2023, and shifting to a bullish stance is suitable for 2024; it’s not smart to fight the market. The market increased to retest its all-time high at the end of 2023 and set new highs in 2024, opening the door to a sustained rally that could add another 600 points to the S&P 500 (NYSEARCA: SPY) this year.
The S&P 500 rally is driven by AI, digitization, the cloud and consumer spending, which is resilient in the face of high interest rates. The FOMC may not cut rates as quickly as hoped, but it is on track to start cutting later this year, reducing or removing economic headwinds and unleashing the S&P 500. Until then, these are the top new picks by Scion Asset Management in Q4 2023. These picks are significant because they are all top-five holdings and more than 5% of the portfolio.
Citigroup: 5.4% of Portfolio, the 5th Largest Holding of Michael Burry
Citigroup (NYSE: C) is the 5th largest holding and nearly 5.5% of the portfolio in early March 2024. The diversified bank is cheap to own at 9.5X earnings and yields a solid 3.8%. The company has been working to effect a turnaround and sustain growth expected in 2024 and 2025. The 2024 results will be tepid relative to 2023, but growth is forecasted to accelerate into 2025, with margin improvement in both years.
Analysts' sentiment in Citigroup has warmed over the last few months. The consensus sentiment tracked by Marketbeat.com is up to Moderate Buy from Hold, and the price target is up more than 1000 basis points, leading the market. Consensus is about 3% above the recent price action, but the freshest targets are above consensus and range as high as $95 or about 70% of the upside. The next visible catalyst for the banking sector is the March FOMC meeting. The FOMC is not expected to cut rates at this meeting but may begin to foreshadow when the first cut will come.
Oracle: 5.6% of Portfolio, the 4th Largest Holding of Scion Capital
Oracle (NYSE: ORCL) popped up as 5.6% of the holdings, in 4th place, and it may surge to a higher position soon. The company is a leading provider of AI-powered database services, cloud services, and AI infrastructure, with partnerships with all the other top players. The analysts are forecasting an acceleration of growth in FQ3 but still underestimate the building momentum. The Q2 results were tepid because of a lack of infrastructure, an issue the company is working on. The Q3 results may not yet show the ramp of available next-gen servers, but it will appear at some point in C2024.
Analysts are supporting this market and leading it higher. The upward revisions slowed following the Q2 release, but the trend is favorable and likely to continue following the Q3 release. Until then, analysts see this stock moving up at least 10% at the consensus mid-point, and there is a dividend. The dividend is worth about 1.4%, with shares near the middle of the recent trading range. The stock price is moving higher within the range and may soon cross above a critical pivot point.
HCA Healthcare: The Largest New Holding of Scion Capital
The largest new holding of Scion, HCA Healthcare (NYSE: HCA), operates in an industry only expected to grow as the population ages and services expand and penetrate more deeply into society. The company operates a network of hospitals, clinics and facilities providing patients a full range of services. The company isn’t thriving but is growing steadily and widening its margin.
Cash flow is used to reinvest in growth, pay dividends, and repurchase shares. The dividend is worth less than 1%, with shares trading near 15X earnings, but the payout is reliable, expected to grow, and compounded by share repurchases. Repurchases reduced the share count by more than 5% in fiscal 2023 and are expected to continue robustly in 2024. The company has over $6 billion under the current authorization, worth about 7.25% of the market cap, with shares near $315.
