Michael Burry just bought 175,000 shares in this FTSE 100 company

Scion Asset Management announced a $6.5bn stake in BP this week. But what could Michael Burry be seeing in an underperforming FTSE 100 oil company?

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Over the last five years, the FTSE 100 is up 15%, compared to 85% for the S&P 500. Despite this, several top hedge funds own UK stocks – and have been buying them recently. 

One of the most prominent examples is run by Michael Burry. During the first three months of 2024, Scion Asset Management bought 175,000 shares in BP (LSE:BP).

Michael Burry

Michael Burry is best known for shorting the US housing market between 2007 and 2009. More generally, though, Scion Asset Management focuses on mispriced opportunities.

A more recent example is GEO Group. Burry bet on the stock after the Biden administration elected not to renew the government’s contracts with the US prison operator.

But if the state wasn’t going to pay companies to run its prisons, it would have to buy them itself. And they were worth a lot more than GEO Group held them on its balance sheet for.

Burry saw that the likely sale of the assets for more than the company’s market value created an opportunity. So Scion was able to take advantage of a hugely undervalued stock. 

BP

With BP, the opportunity isn’t as obvious, but there are a few things worth noting about the company and Burry’s investment. The first is the firm has had a recent change of direction.

Until recently, BP has had a heavier focus on renewable energy generation than the other oil majors. This has been largely unsuccessful and led to significant impairments over last year.

The company’s new CEO, however, has announced a shift in direction from investments in renewables to shareholder returns. This is likely to mean increased dividends and buybacks.

Without the losses from renewable energy, earnings could come in higher in 2024. And at a price-to-earnings (P/E) ratio of 11, the stock already looks cheap relative to other oil majors.

Renewables

The opportunity Burry is seeing might not be specific to BP. Scion also bought shares in Vital Energy and First Solar – both of which are involved in renewable energy generation. 

While BP has been scaling back its investment, it hasn’t quit the sector entirely. The company looks set to take over the EV charging sites Tesla is abandoning.

In general, Scion hasn’t been in the business of making long-term investments. Burry has typically preferred short-term mispricings that have the potential for quick returns. 

It’s therefore possible there’s something on the horizon that renewable energy companies – including BP – could benefit from. The question, though, is what exactly this might be.

Should I buy BP shares?

BP shares trade at a discount to the other oil majors. And if the company can avoid the impairments of last year, the share price could well turn out to be a bargain.

I think there are clear reasons for long-term investors to be interested in the stock. But the news that Michael Burry has been buying is definitely an extra reason to take a closer look.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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