Michael Burry has made a reputation for himself throughout the investing world and past over time, as his wager on the subprime housing market crash was the premise for the film The Huge Brief. Due to the prescience of this funding and the extra consideration it garnered due to the film, many traders like to trace Burry’s portfolio strikes.

His trades throughout the newest quarter have actually captured the creativeness of traders. In line with the newest 13F submitting, Burry’s Scion Asset Administration offered out of all of its earlier holdings, together with the likes of Reserving Holdings, Bristol Myers Squibb, and even his notorious Apple places, and now holds only one newly initiated place in a single controversial inventory: Geo Group (GEO -2.50%). 

Picture supply: Getty Photographs.

Chump change?

Geo Group, with a market cap of lower than $1 billion, is an organization that gives personal correctional, detention, psychological well being, and residential therapy services within the U.S. and abroad. Whereas Burry’s funding in Geo Group actually raises eyebrows, this is the rationale that I do not assume it lives as much as among the hype it has been getting on-line: It isn’t a very massive wager for Burry. Burry owns 500,000 shares of Geo Group, with a reported common buy value of $6.60, making it a few $3.Three million place for him.

For traders such as you and me, this seems like a big place nevertheless it’s not a giant funding so far as institutional traders or hedge funds are involved. For instance, in the course of the first quarter of 2022, earlier than Burry offered out of all of his prior positions, his portfolio was valued at $165 million. So with a $Three million funding, it is not as if Burry goes all in on Geo Group. 

A press release on the broader market 

The small place leads me to imagine that promoting all the things apart from Geo Group is extra of a method for Burry to specific his view in the marketplace itself than pound the desk for Geo Group, per se. Burry is understood for going in opposition to Wall Road consensus, and with bullish sentiment returning to the market as the foremost indexes have rallied off of their lows, it is doubtless that Burry feels the market is overheated within the brief time period and determined to go to money. For instance, he just lately tweeted in regards to the Nasdaq‘s current rally and historic bear market rallies, earlier than deleting the tweet, as is his modus operandi.

This is not to say that Geo Group is not with out its deserves, which doubtless even have performed some half in attracting Burry’s funding. With out delving into politics, the corporate’s core enterprise is offering personal correctional and detention services, which some traders will all the time draw back from. This sentiment is music to a contrarian like Burry’s ears, and going in opposition to the grain can result in alternatives to amass undervalued shares. Geo Group trades at 15 occasions earnings however simply 7 occasions subsequent yr’s earnings, which is much beneath the typical market a number of. 

The place may be a directional wager by Burry. Many pundits imagine that Republicans will acquire management of 1 or each homes of Congress within the upcoming midterm elections, which might result in a return of insurance policies which might be more durable on crime. There is definitely some advantage to this viewpoint and Geo Group might certainly be a beneficiary on this situation.

Ought to traders observe Burry’s lead? 

Finally, there are just a few causes I do not assume traders must observe Burry into this place. As talked about above, it’s a pretty small stake by Burry and never a significant place within the grand scheme of issues. Secondly, taking a look at a five- or 10-year chart exhibits that shares of Geo Group have lagged the S&P 500 badly over the previous decade. Whereas shares could also be getting a short-term bump, the inventory does not have a observe document of making good returns for shareholders, and lots of traders could be higher off merely investing in firms which have created long-term worth.

Lastly, 13F filings solely present a snapshot of the earlier quarter, however greater than six weeks into the third quarter, it is attainable that Burry now not even owns this inventory. With a present value of about $7.70, shares have already gained about 16% since his buy. It is attainable that Burry has already offered out and pocketed a pleasant acquire on the inventory, particularly given his view that the market is frothy.

I like to observe 13Fs and the strikes of iconic traders as a lot as anybody, and the inventory might have its deserves. However on this case, I believe traders could be higher off doing their very own due diligence and shopping for some long-term winners with confirmed observe data as an alternative of merely following Burry.