Jim Chanos Shorting Coinstar (CSTR) & Dell (DELL) ~ market folly

Thursday, April 12, 2012

Jim Chanos Shorting Coinstar (CSTR) & Dell (DELL)

Jim Chanos, founder of hedge fund Kynikos Associates, appeared on CNBC this morning talking about some of his latest short positions.

When it comes to shorting, Chanos says that valuation is the least important factor. Instead, he focuses on flawed businesses, accounting problems, and technological changes. He says the internet has been a great 'leveler' in that it's created successful businesses, but it's also destroying many others.

One company in particular he's shorting is Coinstar (CSTR). He points to DVD sales falling as VHS tapes once did. He highlights how cashflow margins are very high because you're "the last guy standing" so everyone looking to rent DVD's goes to them. But he asks what happens when DVD's are replaced by streaming?

He cites Netflix (NFLX) as a company that's been trying to transition to this. Ultimately, he sees streaming as the future and so thinks DVDs die, along with CSTR (assuming they don't adapt).

Chanos is also playing the "death of the PC" and the mobile revolution. He is short Dell (DELL), citing that PC sales are dropping and being replaced by tablets. Though it's unclear if he's short other PC companies, his choice of DELL is slightly puzzling because the bull thesis on this name in the past has focused on a shift to the enterprise.  Perhaps he'd be better served expressing his bet on a secular shift via a different stock.  For the opposite of Chanos, we've posted up why David Einhorn owns DELL as well.

The Kynikos manager also mentioned that he was previously short Research in Motion (RIMM) in the $60's and covered in the $20's last year.

To see what else Chanos has been shorting, we've also posted up another Chanos presentation: beware the global value trap.

Embedded below are is the videos of Chanos' interview (readers click the link to come watch):

To learn more from this manager, head to Chanos on short selling: the power of negative thinking.

blog comments powered by Disqus