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Quick Summary: Barry Norris is an increasingly high-profile hedge fund manager who goes both long and short on stocks. After a major success in shorting the fraudulent German payments company Wirecard, he has made headlines predicting a bull market in oil and gas stocks and is bearish on most other stocks and bonds.
Introduction: Who is Barry Norris?
“There isn’t a lot of hedging by other hedge funds. A lot of hedge funds have become index trackers with a performance fee.”Barry Norris, as quoted by The Financial Times, February 2022
Barry Norris is the chief investment officer of Argonaut Capital, a long/short hedge fund specialist based in London. Norris has been increasingly covered in the media in the past few years as many of Argonauts’ funds have performed extremely well on the back of both bold short and long calls that went against the grain of popular opinion.
The media also tends to enjoy covering notable professional investors who don’t shy away from making bold short calls. Jim Chanos, Michael Burry and Steve Eisman regularly make headlines for their best against well-known companies.
According to biographical data on Citywire, Barry Norris graduated from Cambridge University in 1996 and started his investing career at fund manager Baillie Gifford. He founded Argonaut Capital in 2005 and currently serves as the firm’s CEO, CIO and lead portfolio manager for the Alpha, Pan European and Absolute Return funds.
Norris is known as a contrarian long/short investor and developed a process around “earnings surprises,” which helps him position his long and short ideas around a strategy that anticipates either positive or negative earnings news.
Norris has become increasingly outspoken on issues ranging from government lockdown and health policies, a potential looming bear market for both stocks and bonds, the potential for 1970s style stagflation and a new bull market in oil and gas stocks.
His fame increased significantly after being short Wirecard, a German fintech stock whose executives now face criminal charges for accounting irregularities that led the stock to drop to zero. Before the company collapsed, Norris told investors on a client webinar that Wirecard has “more red flags than a Communist rally.” The Wirecard bet, as well as other shorts on stocks such as NMC Health and Finablr led to what he described as “near 100% gains” on those positions.
Below we profile some more of Norris’ recent short and long ideas. Please note that there is no way for us to verify whether Norris still holds these positions currently and that potential investors should do their own research before risking their money.
Recent Shorts from Argonaut Capital
Norris’ short positions mostly revolve around what he considers speculative growth stocks that he anticipates will find a much tougher operating environment in 2022 as central banks turn hawkish. Below are some of his top short picks heading into the year:
- Rivian – In recent interviews with Norris, Rivian (RIVN) has come up as his highest conviction short idea. The much hyped electric vehicle makes is one of a number of “story stocks” that Norris has in his targets. Norris described Rivian as “exactly the sort of thing that we’re talking about in terms of speculative tech. It’s late to the party in terms of electric vehicles. It has production problems and even if management execute on their business plan, which I think is highly unlikely, I still think that the stock is 95% overvalued.” It’s likely Norris has reaped substantial paper gains on this bet, as Rivian has dropped 43% just since the start of 2022, as part of a broader wipeout on speculative tech names to start the year.
$RIVN now "ramping EV [truck] production toward a rate of 200 units a week". So thats 10.4k annually c. $900m of potential sales vs. still $58bn equity value— Argonaut Capital (@Argonautcapital) January 26, 2022
By contrast $VOW3 sold 453k EV units last year, has overall sales of $285bn, valued at just $125bn pic.twitter.com/gexWyMkW00
- Plant-based stocks – Norris also sees the advent of many newly IPO’d plant-based stocks such as Oatly (OTLY) and Beyond Meat (BYND) as part of the group of “story stocks” with “no sustainable competitive advantages, no valuation support, instead only some vague hope that they represent the “future”, which is subject to a high degree of risk and with the prospect of a rising discount rate, this possibility weighed by a far less patient market,” as he told Citywire in describing his short book for 2022.
- Peloton – Norris has an interesting history with Peloton (PTON) that resembles how Steve Eisman traded both sides of Zillow in 2020. Norris was initially skeptical and short Peloton, pointing to the lack of staying power for at home “exercise fads.” However, he did switch to long on the stock in 2020 as Peloton exploded to the upside as a result of being a quintessential “stay-at-home” winner. Then, as a result of anticipating the impact of a broader economic reopening, he switched back to short and has presumably reaped major gains as turmoil at the company in the face of dramatically slowing sales has resulted in a near 70% decline for the stock over the past six months. It’s hard to estimate Norris’ exact gains on the stock without knowing his exact entry points into both the short and long positions, but assuming he managed to capture both the majority of the upside and subsequent decline, this likely resulted in an extremely profitable trade for his firm. It also shows how a nimble long/short manager can capture both sides of a volatile move within the same stock.
- Tesla – After an extremely successful run on the short side, including major wins on the likes of fraudulent Wirecard and being on the right side of the recent meltdown in speculative tech, Norris has his sights on the modern day “widow maker” trade for short-sellers: Tesla (TSLA). The electric vehicle maker has made many notable short sellers, including Steve Eisman, tap out due to the “cult-like following” of the stock that seems to ignore fundamentals and repeatedly surge higher. Citywire reported that Norris starting shorting Tesla as it is the last remaining speculative growth stock trading near its all-time high, although he acknowledges risks with the position and has kept the bet much smaller than the outsized one he has on Rivian.
Recent Longs from Argonaut Capital
While Norris is generally bearish on risk assets and seems to discuss his short book with more zeal than his long positions, he does see a bull market in one sector: oil and gas. He also sees an opportunity for reopening plays as society begins to normalize. Here are some of his recent long ideas:
- Gazprom and the oil and gas sector – Norris remains skeptical that the world can transition to alternative energy plays such as solar and wind to the degree that many hope, at least by 2030. He points to a basic problem with alternative energy in that it needs the wind to blow and the sun to shine for energy to be produced, with battery capacity not quite in place yet to be a game changer for these technologies. On the other side of the equation, many oil and gas companies dramatically scaled back investment in 2020 as a result of the energy market crash that year and have yet to catch up in production. This forms the thesis for his call for a new energy bull market, with his top pick to play it Russian gas major Gazprom (OZGPY). “Even if you think that current gas spot prices are unsustainably high, they could fall by half and Gazprom would still be on three times earnings with a 15% dividend,” Norris told Trustnet in describing his rationale for holding the company.
The investment industry just accepted climate apocalypticism without considering the negative economic and social consequences of rapid decarbonisation— Argonaut Capital (@Argonautcapital) January 31, 2022
Why now is the time to invest in fossil fuelshttps://t.co/q6DyIM36U7@AlexEpstein @BjornLomborg @ShellenbergerMD @zerohedge
- Reopening stocks – After initially expressing doubts about the reopening play in 2020 due to his lack of belief in the vaccines as representing as much of a true turning point in the pandemic, Norris now thinks that companies like airlines and hotels have a better chance to outperform as a result of a more virulent but milder variant that will not result in future lockdowns. He described his thinking in detail about this issue in a podcast interview with Moneyweek.
- Homebuilders – Norris still favors some select homebuilders in the long side of his portfolio. Yet he expresses a note of caution as these stocks could be vulnerable to continuing inflation, rising interest rates and higher utility bills as a result of “decarbonization.” According to Citywire, Builders First Source (BLDR) was the largest long position in his portfolio as of the end of 2021, which was joined by other names in the energy, industrial and materials sectors, stocks that presumably will be able to fare better against significantly higher inflation compared to the growth stocks he is so keen to short.
Above are some ideas on both the long and short side to investigate from an outspoken hedge fund manager who goes against the grain. Be aware that any of these positions could have changed since Norris has been quoted discussing them and his entry and exit points are likely to be much earlier than anyone reading this article. Many of his short positions such as Peloton have already declined by well more than half, while his most bullish call on oil and gas stocks has already seen impressive gains. Always do your own research before entering any position and don’t assume that a notable hedge fund manager is still long or short on a stock because he has discussed it in the media.