The Contrarian Play: How Michael Burry Positioned for Recovery in Beaten-Down Stocks

From Cash to Conviction: Burry’s Strategic Reversal

Michael Burry, the legendary investor whose prescient bets against the housing market were immortalized in The Big Short, has done it again. After making headlines by nearly liquidating his entire Scion Asset Management portfolio in Q1—a move that proved remarkably well-timed ahead of April’s market turbulence—Burry reversed course dramatically in Q2. The question investors are now asking: how much did Michael Burry make from this tactical pivot, and what’s driving his sudden bullishness?

Burry’s first-quarter exit, highlighted by short positions on major tech and AI companies like Nvidia, proved prescient when markets plummeted. But the subsequent rebound sparked a complete strategy shift. Q2 filings revealed aggressive accumulation of deeply discounted assets, signaling Burry’s confidence that the market had overcorrected on specific names. This pattern mirrors his housing market playbook—identifying moments when fear overwhelms fundamentals.

The UnitedHealth Opportunity: When Giants Stumble

UnitedHealth Group (NYSE: UNH), America’s dominant healthcare insurance provider, experienced a brutal year. Despite a solid recent bounce, the stock remains down approximately 41% year-to-date as of August 2025.

The damage stems from multiple compounding factors. Management significantly underestimated medical costs for 2025, now projecting a $6.5 billion shortfall. This forced the company to slash its full-year EPS guidance to $16, a stark reversal from the initial $29.50-$30 range issued at the year’s start. Layer on top a DOJ investigation into billing practices related to Medicare Advantage, and the stock’s plunge becomes understandable.

When valuations collapsed to such extremes, institutional capital moved in. Burry acquired approximately 20,000 direct shares while simultaneously purchasing 350,000 shares through long call options—a strategic hedge that limits downside while capturing upside recovery. Warren Buffett’s Berkshire Hathaway and David Tepper’s Appaloosa Management made similar moves, suggesting coordinated conviction among sophisticated investors.

Despite near-term headwinds, UnitedHealth’s fundamental picture remains intact. The company generates sufficient operational cash flow to service debt obligations while maintaining a free-cash-flow yield exceeding 9% over the trailing twelve months. The 3% dividend yield further sweetens the risk-reward proposition for patient capital. As a near-monopoly in U.S. healthcare insurance, the firm retains substantial pricing power to work through current challenges.

Lululemon: Premium Brand in a Cautious Market

The luxury athleticwear label Lululemon (NASDAQ: LULU) faced an even steeper decline, sliding approximately 47% year-to-date. The headwinds are well-documented: intensifying competitive pressure, tariff-related cost inflation, consumer hesitation around premium discretionary spending, and the normalization of fitness trends that surged during the pandemic.

Yet Burry’s team saw opportunity where others saw danger. Scion purchased 50,000 direct shares alongside 400,000 shares via long call options in Q2—similar proportions to the UnitedHealth positioning, suggesting conviction in the recovery narrative.

Lululemon’s operational performance tells a more nuanced story than stock price action suggests. In the fiscal Q1 period ending May 4, the company delivered EPS and revenue both above consensus expectations and showing year-over-year growth. Management’s subsequent guidance reduction to $14.58-$14.78 EPS (from $14.95-$15.15) reflected macro caution rather than underlying business deterioration.

The company’s fortress balance sheet—$1.3 billion in cash and zero debt—provides ammunition for both weathering near-term pressure and investing in growth initiatives. Management signaled intent to implement selective price increases to offset tariff headwinds, demonstrating pricing discipline.

At 13.5 times forward earnings, Lululemon’s valuation suggests the market has priced in most conceivable challenges. Burry appears positioned on the thesis that consensus pessimism has overshot, and that the brand’s competitive moat combined with financial flexibility positions it well for the cycle inflection.

The Investment Thesis: When Fear Becomes Opportunity

Burry’s Q2 positioning across both names reflects a consistent philosophical approach: identify high-quality franchises that have been indiscriminately sold on macro fear rather than fundamental deterioration. Both UnitedHealth and Lululemon possess durable competitive advantages, strong balance sheets, and cash generation that provide downside protection.

The use of call options across both positions suggests Burry is comfortable with defined-risk exposure while maintaining asymmetric upside capture—a classic hedge fund positioning that pays off handsomely if recovery materializes within reasonable timeframes.

Whether you’re evaluating Burry’s specific stock picks or his broader strategic framework, the underlying principle remains consistent: exceptional returns often emerge from contrarian positioning when the crowd capitulates on quality assets during temporary dislocations.