Jim Chanos, founder of Kynikos Associates Ltd., is famous for his short investments. In a previous post, we have comprehensively mentioned how Chanos justifies his pessimistic views on natural gas companies and personal computer producers. In a with Bloomberg, he again talks about how PC and leveraged natural gas companies are not going to benefit from the positive turn of the economy that is in play in the US. The S&P 500 index is up 16 percent, and is about to report its biggest gain since 2009. In the present market scenario, Chanos zeros in on the overpriced stocks.
The famed ‘cynic’ investor has a long held bearish position on Hewlett-Packard Company (NYSE:HPQ). These days the sales of iPads top the number of computers sold by a single computing company, and cloud services are eliminating the need for mass storage devices. Hewlett-Packard Company (NYSE:HPQ), which banks heavily on PC sales, is down 29 percent in share price and reported a fourth consecutive quarter of losses.
Tiger Legatus Master Fund was up 0.1% net for the second quarter, compared to the MSCI World Index's 7.9% return and the S&P 500's 8.5% gain. For the first half of the year, Tiger Legatus is up 9%, while the MSCI World Index has gained 13.3%, and the S&P has returned 15.3%. Q2 2021 hedge Read More
“Hewlett-Packard finds itself in that difficult position today, having to make pricey and risky acquisitions, just to stop itself from shrinking,” he said.
Hewlett-Packard Company (NYSE:HPQ) stock is trading at a forward P/E ratio of 4.3, which is down from 10.45 in 2009. Another example of lost glory is Coinstar, Inc. (NASDAQ:CSTR), which has suffered from the digitization of physical videos. Chanos thinks that the company is overly saturated and has no room for growth. Some other shorts are; Petroleo Brasileiro SA (NYSE:PBR) and Banco Santander, S.A. (NYSE:SAN).
In the natural gas sector, “A number of high-profile natural gas companies may end up in financial difficulty as early as next year,” said Chanos. The S&P Oil and Gas Index that follows Chesapeake Energy Corporation (NYSE:CHK) and Devon Energy Corporation (NYSE:DVN), among others, is up 5 percent for the year and the P/E ratio has been reduced to 12.9 from 54. CHK was down 37 percent last year, and the second largest gas producer in the US is slowed by low gas prices, asset sales, and federal probes into CEO’s accounts.
Another energy producer, EXCO Resources Inc (NYSE:XCO), which capitalizes wholly on natural gas production suffered a 30 percent fall in shares for this year.
“These companies have enormous cash needs,” Chanos said. “One intriguing trade might be to be long natural gas and short some of the leveraged natural-gas companies.” He has previously said that the massive shale oil and gas exploration in the US has changed the dynamics of the industry. Natgas prices are at their lowest since 1999, averaging around $2.57 per million Btu for 2012.
Commenting on China, Chanos said, “China has been a very good place to be short stocks for the past three years. People are increasingly taking a closer look at the Chinese banking system. The questions being asked are getting more granular.” China makes up 20 percent of the hedge fund’s portfolio. He sees Fortescue Metals Group Limited (ASX:FMG), an Australian iron-ore company to suffer from the tumbling iron ore price and reduced demand as the result of slow down in China.
Some of the few longs in Jim Chanos’ portfolio are, JPMorgan Chase & Co. (NYSE:JPM), Macy’s, Inc. (NYSE:M), and Amazon.com, Inc. (NASDAQ:AMZN).