Legendary investor Michael Burry, famous for predicting the 2008 housing collapse chronicled in The Big Short, has revealed his latest contrarian moves through Scion Asset Management’s 13F filing. The hedge fund manager has taken significant positions in two seemingly opposite stories: Lululemon Athletica (NASDAQ: LULU), an athleisure retailer down over 40% year-to-date, and MercadoLibre (NASDAQ: MELI), Latin America’s e-commerce and fintech powerhouse growing revenue at 50% annually. This barbell approach—pairing a deep value play with a high-growth compounder—offers a masterclass in how sophisticated investors navigate uncertain markets.
Lululemon: A Value Trap or a Turnaround Candidate?
Lululemon’s stock has been crushed in 2026, falling more than 40% as the post-pandemic athleisure boom fades. Fiscal Q1 revenue grew a mere 4%, with North American comparable sales stagnating. The real pain showed in margins: gross margin contracted 410 basis points, while operating margin plummeted to 11.2% from 18.5% a year ago. Management compounded the gloom by cutting full-year revenue guidance.
Yet Burry reportedly sees a classic value opportunity. The stock trades at just 10.5x forward earnings—a multi-year low versus a five-year average near 29x. The balance sheet is pristine: zero debt and $1.51 billion in cash. International revenue grew 16%, led by China’s 23% constant-currency growth (though skeptics note 8 percentage points came from Chinese New Year timing, leaving comparable growth around 13%). A potential catalyst looms: former Nike executive Heidi O’Neill takes over as CEO next month, bringing deep brand and supply-chain expertise.
The Bear Case: Structural Headwinds
- Tariff exposure: Roughly 40% of manufacturing sits in Vietnam, 18% in Cambodia, 11% in Sri Lanka, and 11% in Indonesia. Proposed 10–15% tariffs on these nations would compress margins further.
- Momentum loss: Apparel brands that lose growth trajectory often languish for years (think Under Armour or Gap).
- Smart money exiting: Hedge fund holders dropped from 78 to 61 in one quarter, with aggregate position value plummeting 46% to $1.14 billion from $2.09 billion.
MercadoLibre: Deliberate Margin Sacrifice for Moat Expansion
MercadoLibre operates Latin America’s largest e-commerce ecosystem across Brazil, Mexico, and Argentina. But it’s far more than a marketplace: the company runs Mercado Pago (digital payments), issues credit cards, originates loans, and operates Meli+, a free-shipping loyalty program. Q2 revenue surged 50% year-over-year to $10.2 billion—the fastest pace in four years—yet shares fell 6% post-earnings because operating margin collapsed 550 basis points.
Bulls argue the margin hit is the thesis, not a flaw. Management is deliberately subsidizing shipping on lower-priced items in Brazil to onboard lower-income consumers. Once captured, these users adopt Mercado Pago, subscribe to Meli+, and take credit products—creating a flywheel of rising take-rates and customer lifetime value. Hedge fund conviction remains intact: holder count dipped from 113 to 102, but dollar exposure barely budged ($7.83B vs $8.08B), suggesting managers added to positions as the stock sold off.
Key Takeaways for Investors
- Contrarian discipline: Burry buys when sentiment is worst (LULU) and when growth justifies short-term pain (MELI).
- Margin of safety: LULU’s net-cash balance sheet and sub-11x earnings multiple provide downside protection.
- Optionality: MELI’s fintech adjacency (payments, credit, insurance) offers multiple paths to monetize its 148M+ active users.
- Monitor catalysts: LULU’s new CEO execution; MELI’s Brazil shipping economics; tariff policy developments.
Frequently Asked Questions
1. Why would Michael Burry buy a retailer down 40% with deteriorating fundamentals?
Burry specializes in deep value investing—buying quality assets when pessimism is excessive. Lululemon’s 10.5x forward P/E, zero debt, $1.5B cash, and new Nike-sourced CEO create a scenario where even modest operational improvement could drive significant multiple re-rating. He’s betting the market has over-discounted transient headwinds.
2. Is MercadoLibre’s 550-basis-point operating margin decline a red flag?
Not necessarily. The margin compression stems from intentional investment in free shipping to acquire price-sensitive Brazilian consumers. This mirrors Amazon’s early strategy of accepting lower margins to build Prime loyalty. If the cohort economics work—new users adopt Mercado Pago, Meli+, and credit products—the long-term ROIC on this spending could be extremely high.
3. How should retail investors position around these 13F revelations?
13F filings reflect holdings as of quarter-end (45-day lag), so prices have moved since Burry’s actual purchases. Use the filings as idea generation, not blind signals. For LULU, wait for evidence of traffic stabilization or margin inflection. For MELI, monitor Brazil shipping economics and take-rate trends in the next two quarters. Size positions appropriately—these are high-conviction, high-volatility names.
