How Burry Spotted Value When Markets Wrote Off Two Broken Stocks

In an impressive display of contrarian investing, Michael Burry has once again demonstrated why he’s among the most closely watched investors in the market. After a bold portfolio purge in early 2025 that caught the attention of Wall Street watchers, Burry and his fund Scion Asset Management have shifted gears—now aggressively buying into two heavily beaten-down stocks that most investors seem to have abandoned. This tactical reversal came after Burry’s earlier defensive positioning proved prescient, helping the fund avoid significant losses when markets faced turbulence in spring 2025.

From Liquidation to Opportunity Hunting

The investment landscape in 2025 presented Burry with a rare setup. After selling nearly his entire portfolio in the first quarter—a move that included purchasing protective put options against major tech and AI stocks—Burry positioned himself perfectly to capitalize when volatility struck in April. Rather than remaining on the sidelines, Burry’s second-quarter filings revealed a dramatic shift: the fund became an aggressive buyer, accumulating positions in securities that had plummeted at least 40% year-to-date. This pattern mirrors Burry’s historical approach: identifying moments when market pessimism has driven valuations to unrealistic levels.

The two stocks attracting Burry’s attention represent textbook examples of market overreaction—companies with legitimate operational challenges, but where negative sentiment has disconnected from underlying financial strength.

UnitedHealth: Navigating Temporary Turbulence

Healthcare insurer UnitedHealth faces genuine headwinds that explain its sharp 41% decline through mid-2025. The company significantly underestimated medical costs for the year, resulting in projections for additional expenses totaling $6.5 billion above initial expectations. Management subsequently slashed its full-year earnings guidance from the $29.50-$30 range down to $16 per share, a painful retreat that spooked investors. Additionally, the Department of Justice launched an investigation into the company’s Medicare Advantage billing practices, adding regulatory uncertainty.

Yet beneath the negative headlines, UnitedHealth retains fundamental strength. As America’s largest healthcare insurer, the company maintains substantial pricing power within its market segment. From a cash flow perspective, UnitedHealth generated sufficient operating earnings to service its debt obligations while maintaining a free-cash-flow yield exceeding 9% over the trailing twelve months. The stock also offers investors a dividend yield near 3%, providing ongoing compensation during the recovery period.

Burry recognized what other opportunistic investors, including Warren Buffett’s Berkshire Hathaway and David Tepper’s Appaloosa Management, also identified: the market had priced in multiple years of disappointment despite the company’s capacity to navigate near-term challenges. His move included purchasing approximately 20,000 shares directly plus accumulating 350,000 additional shares through long call options—positioning himself for significant upside if sentiment shifts.

Lululemon: Testing a Premium Brand’s Resilience

The luxury athletic apparel sector has proven particularly unforgiving in 2025, with Lululemon down nearly 47% as multiple pressures converged on the business. Rising competitive intensity, tariff headwinds, shifting consumer behavior toward more cautious spending, and the fading tailwinds from pandemic-era fitness enthusiasm have all weighed on the company’s trajectory.

However, Lululemon’s operational reality tells a different story than the stock price suggests. In its first fiscal quarter of 2025, the company reported both earnings and revenue exceeding Wall Street expectations on a year-over-year basis. Management did lower full-year EPS guidance to the $14.58-$14.78 range—down from a prior $14.95-$15.15 range—citing macroeconomic uncertainty, but the company’s balance sheet presents compelling defensive characteristics.

With $1.3 billion in cash and zero debt on the balance sheet, Lululemon possesses the financial flexibility to invest in growth initiatives while absorbing near-term margin pressure from tariffs. Management has signaled plans to implement modest price increases to offset some tariff impacts, while the company’s established brand and customer loyalty provide a durable competitive moat.

Burry acquired 50,000 shares directly during the second quarter alongside 400,000 additional shares through long call options. At approximately 13.5 times forward earnings, the valuation reflects a market that has likely priced in most of the near-term challenges. Burry appears confident that Lululemon’s premium positioning and financial strength will allow the company to emerge stronger once current headwinds moderate.

The Method Behind the Contrarian Bet

Burry’s investment thesis in both cases reflects consistent reasoning: markets occasionally disconnect from underlying value when sentiment turns sufficiently negative. Both UnitedHealth and Lululemon face legitimate operational challenges, yet neither company faces existential threats. The financial metrics suggest both possess the tools—cash generation, market positioning, balance sheet strength—to weather current difficulties.

By accumulating these positions when other investors have lost confidence, Burry is essentially betting that normalized market conditions and recovering sentiment will restore more reasonable valuations. It’s a refined version of the same contrarian approach that made him famous during the 2008 crisis—identifying points of maximum pessimism and positioning accordingly.