Tags: Chanos | IBM | Caterpillar | fundamentals

Jim Chanos Shorting IBM, Caterpillar

By    |   Friday, 19 December 2014 10:46 AM

Legendary short seller James Chanos, founder of Kynikos Associates, says the environment for shorting has improved this year, and he's deploying the strategy on IBM and Caterpillar.

"This is a much better year for short-selling than last year," he told CNBC. "The market has begun to bifurcate. Companies doing financial engineering, as we believe IBM is, are having a tougher go of it."

So what's the issue with financial engineering?

"We're looking for companies masking bad operations by buying back stock and/or playing accounting games by using pro forma adjustments and that sort of thing," Chanos said. "IBM fit that bill."

As for Caterpillar, "its fundamentals have been deteriorating for two years," he said. "They're highly exposed to the mining industry," and both iron ore and copper prices have been falling.

"They have two businesses to fall back on — energy and construction," Chanos said. "Energy is now going to be a drag. Construction should be good."

While Caterpillar and especially IBM shares have rallied since Tuesday, "I try not to let the price tell me what to do with a stock," he said. "I try to let the fundamentals because we can hopefully do a better job of predicting fundamentals than we can stock market prices. If we get the fundamentals right over time, over a portfolio, the stock prices will take care of themselves,"

Caterpillar traded at $91.37 Friday morning and has risen 0.5 percent this year. IBM traded at $159.75 and has dropped 14.8 percent.

Morningstar analyst Kwame Webb puts fair value for Caterpillar at $98, and his colleague Peter Wahlstrom sees fair value for IBM at $196.

"Despite emerging threats, we believe IBM's product development and entrenched customer relationships will ensure that the firm maintains its competitive advantage," Wahlstrom writes on Morningstar.com.

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Legendary short seller James Chanos, founder of Kynikos Associates, says the environment for shorting has improved this year, and he's deploying the strategy on IBM and Caterpillar.
Chanos, IBM, Caterpillar, fundamentals
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2014-46-19
Friday, 19 December 2014 10:46 AM
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