Investing

Why Are Warren Buffett and Michael Burry Selling Stocks?

Joey Frenette

Published: September 10, 2024 8:52 am

Warren Buffett, the Oracle of Omaha, and Dr. Michael Burry, Christian Bale’s character in the film The Big Short, are two of my favorite investment legends. Though their investment styles differ greatly, their track records speak for themselves. Whether we’re talking about Buffett’s extremely long-term focused value approach or Burry’s bold, often high stakes, contrarian bets based on macro and bottom-up analysis, both investors are worth following for different reasons.

In recent months, both investors have made moves that I believe scream caution. Notably, Buffett and Berkshire Hathaway (NYSE:BRK-B) have been selling a lot of Apple (NASDAQ:AAPL) and Bank of America (NYSE:BAC) shares, while Dr. Burry has reportedly offloaded stakes in a wide range of firms, including Block (NYSE:SQ), in addition to taking profits in his gold holdings.

Undoubtedly, it’s noteworthy whenever there’s substantial selling by two of the most respected and influential investors of our generation. In this piece, we’ll look at three stocks on the receiving end of sales by either Buffett or Burry.

Key Points About This Article

• Warren Buffett and Dr. Michael Burry don’t sound all too bullish following the latest round of profit-taking
• Perhaps it’s time to raise cash if you own some of the names recently sold by the firms of Buffett or Burry.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
  

Bank of America

Berkshire Hathaway and Buffett may have sold a huge chunk (around $760 million) of Bank of America shares recently. Indeed, the rapid pace of selling has been concerning to some BAC shareholders, causing questions to linger about how many more shares Buffett’s firm plans to offload going into year’s end. For now, we can only speculate when Berkshire will be done selling its Bank of America stake.

For now, I wouldn’t treat such selling as a red flag to follow Buffett out of the name if you already own shares. That said, Bank of America stock looks quite fully valued here (13.9 times trailing price-to-earnings and a 2.68% dividend yield), especially when you consider the rising recession risks following that latest market volatility-inducing jobs number.

In the meantime, loan growth could stay sluggish until the Fed rate cuts have a chance to add up. For those keen on betting on the banks in this environment, perhaps the yield-heavy Canadian banks boast a better value proposition. Some of the more heavily discounted Canadian banks yield north of 5% right now.

Block

Block is a rather intriguing fintech that’s still nowhere close to rebounding to its 2021 highs. Though Dr. Burry didn’t hold shares for very long (he reportedly purchased SQ during the fourth quarter of 2023), I do think his initial interest signals potentially deep undervaluation to be had in the financial technology firm behind Square and Cash App.

With tempered enthusiasm for Block’s growth and a profoundly influential founder at the helm, there’s arguably never been a better time to go against the grain. Today, the stock trades for just 13.1 times forward price-to-earnings. Still, dip-buyers could find themselves waiting a while before the stock picks up traction.

With a relative lack of catalysts, stiff competition in the fintech scene, and recent volatility hitting cryptocurrencies, the stock seems less than timely. However, the biggest question is whether Dr. Burry will get back into the name at a later date, perhaps after Block has had a chance to enhance its margins with its recent restructuring.

First Solar

First Solar (NASDAQ:FSLR) is another short-lived holding in the Burry portfolio that investors may be looking to dump as political risks kick things up a notch. Undoubtedly, the leading solar cell firm has a lot on the line come election day. And though some risk of a Trump victory is priced in, I’m not so sure the stock will be so quick to regain new highs following a good quarter that included unchanged earnings and revenue guidance.

Although First Solar still looks primed to gain ground over its solar rivals, the uncertainty surrounding the election could dictate where stocks go from here. Longer term, however, lower rates, and its innovative edge could help shares make up for lost time. And for just 9.5 times forward price-to-earnings, there’s no denying FSLR shares are on the cheap side.

In any case, I’d wait until after the election before considering jumping into the name now. Perhaps Burry was right to ditch the stock ahead of what could be a make-or-break for the industry.