$AJRD, a Burry Buy, Gets Acquired

$AJRD made up 14% of his portfolio and was up 18% since his filings

We love following legendary investors like Nancy Pelosi and Michael Burry. Coat tailing them into trades has worked pretty well for us over the past few years. When either of them files a new 13F we drop what we are doing and try to figure out why they bought a certain investment. Once we understand the investment thesis, we load up and wait.

And that is exactly what we did when Michael Burry filed a fresh new 13F on November 14th, 2022. When we saw that Burry loaded up on Aerojet Rocketdyne Holdings (AJRD) we dug into the assets and bought shares that same day. 

Source: Burry 13F filed with the SEC

Then just one month later, Aerojet Rocketdyne Holdings announces they are getting acquired by L3Harris for $58 per share. When Michael Burry filed his 13F on Aerojet the price was at $48 per share. With a buyout price at $58, we secured a 18% return in just one month. This is almost a 200% annualized return and all we had to do was coattail Burry into this stock. 

Could we have predicted this buyout?

The reason why we loaded up alongside Burry into Aerojet is because the buyout was easily predicted. All it took was 45 minutes of reading SEC filings. Here is what we found out that made us extremely bullish on Aerojet.

• On January 25, 2022, the FCC filed a lawsuit against to block the planned purchase of Aerojet Rocketdyne by Lockheed Martin for a total purchase price of $4.4 billion. Aerojet Rocketdyne is the nation’s last independent supplier of key missile inputs, making their business extremely valuable to conglomerate defense contractors like Lockheed. If Lockheed was successful in purchasing Aerojet, they could cut off all other defense contractor and essentially control a monopoly on missile manufacturing.

• With the first acquisition getting cancelled by the SEC, Aerojet was essentially in play to get acquired. Now other potential buyers could make their own bid for Aerojet and the management team and board of directors would have to entertain all bids, especially anything over a $4.4 billion valuation, for fiduciary purposes. 

• Anyone who could control the last independent missile parts supplier would give someone a strong moat and growing future cash flows as war in the Ukraine wages onward. The future value for Aerojet looked compelling and with an option buyout on the table, we got excited.

• Aerojet was rapidly expanding their production and manufacturing capabilities by opening a new 379,000 manufacturing facility in Huntsville, Alabama, which essentially told investors that future revenue growth was incoming. 

• There was hidden real estate assets on the balance sheet (12,200 acres in Rancho Cordova) and the management team was actively looking to monetize these assets. Smart investors were valuing these assets close to half the value of the entire company.

• Legendary Investor Warren Lichtenstein owned a significant stake in Aerojet Rocketdyne and it provided us comfort that we were alongside two well respected investors.   

In short, Aerojet Rocketdyne looked cheap with a potential buyout catalyst on the horizon. We thought that Michael Burry was onto something and then we saw that Lichtenstein was also a major shareholder in the company. Worst case scenario, the company continues to grow, sells their real estate assets and in a few years, we get maybe an 8-10% annualized return. Best case scenario, another bidder comes in an snaps up the entire company, while we exit for a triple digit IRR. 

Want more stock ideas? Michael Burry recently purchased a significant stake in a small company whose stock price has cratered 70% in the past year. The stock is priced like it is going bankrupt. If our analysis, along with Burry’s is correct, there could be significant upside here. Subscribe to our newsletter and get our research report on this stock next week.