Chanos: 'I Don’t Think Apple’s a Value Stock’

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Sept. 17 (Bloomberg) –- Kynikos Associates President and Founder Jim Chanos discusses some of his long positions and factoring in valuation when purchasing a stock. He speaks with Erik Schatzker, Stephanie Ruhle and Cory Johnson on Bloomberg Television’s “Market Makers.” (Source: Bloomberg)

You used to be a short seller and did forensic research and you now cover tech.

Your best question for jim chanos?

I have about a thousand.

I want to know what names you are doing work on.

When i watch you on these shows and i don't talk to you much, i know you for your great individual research on names and maybe you are reticent to talk about those, but i'm always curious what names you are working on.

I'm not going to reveal anything i shouldn't but i will say one of the areas we are most interested in right now, similar to what got us interested in hewlett packer which was the economy acquisition, companies growing larger by ever larger acquisitions.

Increasingly now, we are seeing the point in some of these companies where they are having to make the acquisition too far, which was tycho class problem 10 years ago.

How many revenues, and some of them don't even make profits and they are having to do bigger and bigger deals trade will you let me guess when?

You can guess all day but i'm not going to tell you.

Ibm is an interesting company that has seen revenues falling and have done a ton of acquisitions area -- ton of acquisitions.

Can i write that one down?

I'm just guessing.

3-d systems, stocks trade up and to the right and done of ton of acquisitions that are interesting.

Both of those companies are doing exactly what you are saying.

Whether or not we are looking at them is a different issue.

There are a number of them in tech, with very large market caps, where the organic growth is slowing or negligible.

It is fooling this generation of analysts.

But the reality will come in.

Let's talk about apple.

That's a name you are involved in on alongside.

They have that quaint notion of developing their own products internally with their own design teams as opposed to some of these companies who basically -- and you have heard me complain about this and cory understands this concept better than most.

Companies in tech that acquire lots of companies are basically capitalizing their r&d. instead of expanding internally like apple and samsung, which is multiples of r&d -- if they are doing their own r&d, it's hurting their operating margins.

The accounting rules gives them the benefits and the knucklehead to don't consider acquisitions as part of three cash flow -- thinks the free cash flow looks good and hewlett-packard or dell, as you mentioned.

If you look at acquisitions as r&d, suddenly a lot of these companies look a lot more expensive than they do on the surface.

What about one of the more old-fashioned screening systems for overvalued stock's? companies whose earnings growth can possibly justify it question mark i don't know any companies like this.

[laughter] you have talked about netflix.

Pandora, amazon in some peoples eyes belongs in that list.

What do you think of those companies?

Not with amazon and to a lesser extent netflix, retail investors are falling in love with concepts with limited floats eerie -- limited floats.

Meaning not enough shares outstanding.

The whole world can get very excited about pandora or a company that makes electric cars or whatever you might want to say, but if there are only a million shares outstanding in public hands as opposed to hundreds of millions outstanding which inexorably will get onto the market , venture capital distribution, insider sales, and this is what happened in 1999 and 2000. as the stocks were higher and higher, the was a flood of issuance.

Pandora, to that point, the sellers at pandora are some of the private investors selling 4 million shares and the stock went straight up into the right.

Rex you are short pandora?

I'm not commenting on whether we are short pandora.

A lot of these stocks are trading on very limited floats.

Even though they have big market caps, the amount of tradable shares is limited and that's going to change radically in the fourth quarter if prices stay where they are.

It makes a lot of sense for the original investors to diversify.

The timing issue is one i have suffered from and lost sleep on and i'm glad i don't have to do that anymore.

Do you wait for the secondary , for the time those guys are getting out or do you get in early if the position goes against you?

I wonder how you look at a company like tesla which has a high shortage but the stock is done nothing but go straight up into the right.

A lot of bulls think the valuation is stretched, to be kind.

How do you figure out timing?

That's the 64 million billion dollar question.

If we could time these things perfectly, there'd be no fun in the process.

In any case, it's a mixture of things.

Is the business deteriorating?

We have pointed out over and over again that our best shorts historically are stocks that have appeared cheap.

The businesses were deteriorating faster than the value investors were lowering their numbers.

Many of those companies get into financial trouble.

Everybody says be careful shorting on valuation and i think that's a good bromide.

On the other hand, not factoring valuation when you kill a stock -- i would caution a lot of investors out there whether or not you want to short stocks or not.

Most people viewing this show should not.

You are to take valuation into account when he i something because it will matter at some point.

-- we have since gotten out of it.


A lot of reasons bloomberg has covered.

If you look at the buyback activity, what message should that convey?

Pre-k's i am very leery of tech companies have become value stocks.

It just never seems to work.

It trades like a value stock but it is still a pretty good consumer company.

And i'm not so sure apple is a technology company as much as it is a consumer products company.

What is microsoft?

Microsoft is a tech company.

He's a bloomberg has covered those issues well but i wonder which ones stand out most about microsoft?

Bucks i don't want to comment on microsoft.

The point is going back to your opening remark, hour-long's are designed to be hedges for our short.

It depends with the shorts in the port the leo are.

This text has been automatically generated. It may not be 100% accurate.


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