Jim Chanos Short Cheniere Energy, Caterpillar, Solar City & More: Interview

Noted short seller Jim Chanos, founder of Kynikos Associates recently appeared on CNBC to share his thoughts.

During the interview, he revealed a new short position: Cheniere Energy (LNG).  We've highlighted how Carl Icahn went long LNG recently.  There are also numerous other prominent hedge funds long.

Chanos, on the other hand, has been negative on the liquefied natural gas space over the past six months, thinking it's a "looming disaster" because it's tied into Asia and that LNG demand isn't growing anymore.

He went on to say, "LNG has been seen as a unique animal because it's going to be U.S. based, they're opening its Sabine Pass later this year.  With the stock at 30 times 2020 earnings, with the upside coming from a glutted market, we think the risk/reward in this, given where other LNG plays are in Australia and elsewhere, is just completely out of whack."

Chanos noted he's still short Caterpillar (CAT) but has covered his Joy Global (JOYG) short.  He argues CAT is trading at a rich multiple relative to its peers and that the company isn't letting on just how bad things are out there.

Chanos is also negative on pretty much everything in the PC chain.  He argues that "the value in the hardware chain gets competed away" as the products are commoditized.  He's short Hewlett Packard (HPQ) and some PC manufacturers in Asia.  He's hedged this by being long Apple (AAPL) with better growth and products.

He called Tesla (TSLA) "silly" as it trades on 2025 earnings that's become a momentum and concept stock. Regarding other Elon Musk companies, he thinks Solar City (SCTY) is the most problematic.

On China, Chanos continues to be concerned.  He says that "one of the worries we've always had was they were going to lose control of their currency ... that's why I think the markets took a real shudder in August."  That said, he argued that the US is the country "least affected by what's happening in China."

Lastly, Chanos also said cybersecurity is one of the few areas of growth.

Embedded below are videos from Chanos' interview:

Video 1:



Video 2:



Video 3:



Video 4:



Video 5:




For more from this short seller, be sure to also check out another recent Jim Chanos interview.

Jim Chanos Says China 'Worse Than You Think;' Reveals SolarCity Short

Noted short seller and founder of Kynikos Associates Jim Chanos recently appeared on CNBC to share his thoughts on the markets.

He mentioned that he feels that China is "worse than you think" and that "the biggest lesson over the last three months, for me anyways, is people are beginning to realize that the Chinese government is not omnipotent and omniscient."

Chanos, of course, has been a long time vocal skeptic on China's growth and property market.

Turning to the US, Chanos feels that people have gotten a bit 'complacent,' noting that markets have gone basically straight up and that's not how markets work.  He also mentioned that he's short Hewlett Packard (HPQ), Caterpillar (CAT), Shell, Chevron (CVX) and also unveiled a newly disclosed short: SolarCity (SCTY).

He called HPQ a "challenged business" and thinks it's in secular decline.  He says "in technology if you're not growing, you're in effect dying."

On CAT, he said it's a commodities supercycle problem.

On SCTY: Chanos argues the problem is that they have a residential model and it's really "a subprime financing company in effect" since they lease out solar panels.

Embedded below are clips from Chanos' interview:

On China:



On Hewlett Packard:



On SolarCity:



On Caterpillar:



For more from this short seller, be sure to also check out Jim Chanos' interview on Wall Street Week.

Jim Chanos Short Intel

Short seller Jim Chanos, founder of Kynikos Associates, is short Intel (INTC).  He appeared on CNBC this morning to talk about his outlook on the PC industry.  He also mentions he's long Apple (AAPL).

Embedded below is the video of Jim Chanos' appearance on CNBC:

What We're Reading ~ Analytical Links 11/5/14

The Misbehavior of Markets: A Fractal View of Financial Turbulence [Benoit Mandelbrot]

What's your investing edge? [Clear Eyes Investing]

Building a personal margin of safety [Abnormal Returns]

Managing someone else's emotions [A Wealth of Common Sense]

On taking losses and the value of survival [Long Short Trader]

A look at Ocwen Financial & Altisource Portfolio Solutions [Doug Kass]

A look at C.H. Robinson [Punch Card Investing]

On Hewlett Packard's break-up [Aswath Damodaran]

First time homebuyers hit lowest in nearly 30 years [CNBC]

On Japan and business vs economics [Paul Krugman]

Underwriting the next housing crisis [NYTimes]

An interview with Google's Larry Page [FT]

How confirmation bias can lead to spinning wheels [NYTimes]

Sears has a deal to offer its shareholders [Bloomberg View]

John Maynard Keynes is the economist the world needs now [BusinessWeek]

The way to make solar energy a hot investment? Make it a boring one [Slate]

What We're Reading ~ Analytical Links 4/16/14

Notes from the DoubleLine lunch with Jeff Gundlach [Reformed Broker]

The illusion of conscious investing decisions [All About Alpha]

Prem Watsa says dot-com rally to 'end in tears' [Bloomberg]

Interview with Larry Pitkowsky and Keith Trauner of GoodHaven Fund [Forbes]

Charting a tasty future for Post Holdings [Barrons]

Google moving to play a larger role in booking hotel rooms [WSJ]

US companies adding significantly to their debt [FT]

Amazon's new smartphone? [BGR]

Jeff Bezos' annual letter [SEC]

The problem with profitless start-ups [NYMag]

Can do vs can't do cultures [BHorowitz]

Michael Lewis' "The Big Short" to hit the big screen [CNN Money]

Delivering Alpha Best Ideas Panel: Mark Kingdon, Chris Hohn, Jim Chanos, Lee Cooperman

The Delivering Alpha Conference today featured a 'best ideas' panel that featured some hedge fund titans including Jim Chanos (Kynikos Associates), Chris Hohn (Children's Investment Fund), Mark Kingdon (Kingdon Capital), and Lee Cooperman (Omega Advisors).  Here's a brief summary of their picks:

Mark Kingdon, Kingdon Capital

Long Japanese automakers: Long Toyota (TM), Long Fuji Heavy (7270.TO) Long Mazda (7261.JP)

He says these companies obviously benefit from Abenomics in Japan.  Toyota he likes as an innovative leader with focus on hybrid technology.  Fuji Heavy (Subaru) is moving from low margin to high margin products.   He says Mazda might have the most upside of the names. 

Chris Cooper-Hohn, Children's Investment Fund

Long Porsche (PAH3.DE) - It's basically a holding company owning 150 million shares of Volkswagen.  If the two merge eventually, the stock doubles.  We've highlighted Hohn's thesis on Porsche before.

Long EADS (EAD.FR) - A liquid large cap with a new focus on making money.  Could double over 2 years. 

Long Aurizon Holdings (AZJ.AU)- Australian railroad, a total turnaround story as the company has transitioned from government-owned to a company more aimed at profit.  He thinks it could double over next 3 years


Lee Cooperman, Omega Advisors

Long Qualcomm (QCOM) - points to a large amount of cash on the balance sheet and a lot of pessimism on the name.

Long Sandridge (SD) - could be a double.

Long Express Scripts (ESRX) - company is growing and buying back stock.  We've also posted up another Cooperman interview recently where he talked about other stocks he likes.


Jim Chanos, Kynikos Associates

Short Caterpillar (CAT) - a bet on China's property development slowdown and he says the company is just exposed to the wrong products at the wrong part of the cycle.  Here's Chanos' pitch on CAT here.

Short Hewlett Packard (HPQ) - he also reiterated his call against the PC, saying it's dying a slow death.  This has been a longstanding short and we've posted up Chanos' thesis on HPQ as he called it a value trap last year.



For more from the Delivering Alpha Conference, head to:

- John Paulson on gold, real estate & merger arbitrage

- Nelson Peltz on PepsiCo & Mondelez

- Larry Robbins & Jacob Gottlieb on healthcare plays

- Carl Icahn on activism 

Jim Chanos on His Tech Longs/Shorts, China & the Art of Short Selling: CNBC Interview

Kynikos Associates founder Jim Chanos was on CNBC today talking his short positions, China, and even some of his longs.  Here's the key takeaways from his talk:


Chanos' Technology Longs & Shorts

One of the main takeaways here is that he's long leading players in the mobile smartphone/tablet arena: Apple (AAPL) and Samsung (KRX:005930).  At the same time, he's short the slowly dying PC makers like Dell (DELL) and Hewlett Packard (HPQ).  While the trade hasn't been working well as of late, he still thinks the fundamentals will win out over time.  He thinks printers, ink and PCS all face secular declines.


On China

A few days ago, we posted up Jim Chanos' presentation on China from the Wine Country Conference.  On CNBC today, he talked about why he feels China's economic situation has actually gotten worse.  He points to the rapid credit expansion over there and sees a potential bubble. He likes to be short companies related to real estate and construction in China and also pointed out steelmakers and iron ore players.  Greenlight Capital's David Einhorn has also said to short iron ore.


On What He Looks For in Shorts

The Kynikos manager says that "timing is not my forte" and the ever-rising markets of today can be difficult for a short-seller.  He says, "It's problematic because it's more frustrating, but on the other hand you're given more opportunities."  He feels that ultimately, the fundamentals will win out because these rallies have also propped up the 'leaky boats'.  He also somewhat joked that they like to look at companies that put their names on sports team arenas.

Chanos looks for an edge in something that everyone's not focused on.  Two simple indicators he likes: wholesale executive departures and large amounts of insider selling from multiple individuals.  He says, "Those two indicators together are about as big of red flag as you can get."


Embedded below are the videos of Chanos' interview on CNBC:

Video 1 on China

Video 2 on tech stocks

Video 3 on natural gas and coal

Video 4 on what he looks for in short selling


For more from this hedge fund manager, head to Chanos' recent China presentation.

What We're Reading ~ Analytical Links 3/27/13

Doug Kass' basic investing tenets [TheStreet]

Cannibals: finding companies doing 'good' buybacks [ValueInvestingLetter]

Four villains of decision making [Farnam Street]

Student loan write-offs hit $3 billion in first 2 months of year [Yahoo News]

America's new railroad age [WSJ]

Examining Cupid PLC [Bronte Capital]

Relative value in credit risk [Bigger Capital]

Technicals: keeping an eye on Dr. Copper [Kimble Charting]

Soda consumption declines to lowest level since 1996 [CNBC]

Value investing in India is dead [Atyant Capital]

Investors face a shrinking stock supply [USAToday]

Market psychology money and investing personality tests [MarketPsych]

Hewlett Packard (HPQ) shares soar, but is it a real turnaround? [Barrons]

Dell (DELL) board continue talks with Icahn and Blackstone [Dealbook]

Google (GOOG): How YouTube is casually beating other social networks [PandoDaily]

Don't blame Barnes & Noble (BKS) [Digital Book World]

10 influential blogs financial advisors should be following [Financial-Planning]

What We're Reading ~ Analytical Links 3/13/13

The truth about market timing [The Big Picture]

Here's what happens when rates rise [Reformed Broker]

7 big questions to help you invest better [Fool]

Advice from a contrarian: when running with the herd, it's easy to trip [Globe & Mail]

The paper world of Brookfield Asset Management (BAM) [SIRF]

Greed is Groupon (GRPN): can anyone save the company from itself? [Verge]

NYSE Net Margin debt: most important chart of last six years [Aviate Global]

Nu skin (NUS): ladders, losers and direct-marketing schemes [Caixin Online]

No Kodak moment for Hewlett Packard (HPQ) [II]

Sidetracked: why our decisions get derailed [Simoleon Sense]

In spinoffs, a time to jettison undesirable liabilities [NYTimes]

A pitch on Northbridge Industrial Services (NBI.L) [Octomore]

Gold is the worst investment of 2013 [Quartz]

Quantitative easing: the greatest con ever sold [Minyanville]

7 investment principles for entrepreneurs [Inc]

Offshore cash hoard expands by $183 billion at companies [Bloomberg]

Amazing shift in US fuel consumption trajectory [FT Alphaville]

Coatue's Philippe Laffont on Apple, Google & Technology/Media Trends

Coatue Management's founder Philippe Laffont appeared on Bloomberg TV today to talk about tech stocks, including Apple (AAPL), Google (GOOG), and others.  He says that tech stocks are 'historically cheap' and he's always on the lookout for the new trends.


On Apple (AAPL)

"It’s cheap by any measure. The key is not to think whether stock will be up $50 in the next few months. The key is what would it take for Apple to get to $800. It would be a great return if just from today it went back to $600. To me, the company has to take back the offense. The company has been a little bit put on defense. Samsung and Google have been very strong competitors... at some point Apple is going to take back the offense."

Laffont was asked why he is still bullish on the name and while Coatue still owns shares, our Hedge Fund Wisdom newsletter flagged that the hedge fund sold 55% of its AAPL stake at the end of 2012 so that's worth keeping in mind.  They've been a long-term bull on the name. 

Laffont wants to see the company make product moves and make better use of cash, saying:

"The company is so big that how they use the cash is going to determine value, there’s no way about it. But there are going to be some new products coming in. I think they have some things up their sleeve."

Coatue reportedly hosted AAPL's CFO at their investor day earlier this year.  Laffont hinted that AAPL should make some acquisitions as well as he wants the company to bring on some new talent and ideas.


On Google (GOOG) 

Laffont thinks the tech giant could be a triple in 5-7 years from now, trading at just 5x earnings.


On Storage & "The Cloud" 

He sees storage as a long-term trend as data continues to move to the cloud.  One of his largest investments in public markets is datacenter provider Equinix (EQIX).  Coatue has recently started making private investments and Box.net was one of their first (another play on this trend).


Talking Other Tech Companies 

He also commented on how there's a new 'four horsemen' of tech: Google, Apple, and Amazon.com (AMZN), original members of the group remain, but he would add Samsung and Twitter to that bunch.  He says Twitter has huge strategic value, but little revenue so it's hard to value.  On Facebook (FB), Laffont feels that in an increasingly mobile world, advertising is a lot harder.


On Tech Value Traps & Shorts

The Coatue manager went on to note that while many investors in other sectors look for bargains and 'cheap stocks,' tech isn't necessarily the best place to do that because a lot of times in this sector these cheap stocks are actually value traps.  He listed Hewlett Packard (HPQ), Microsoft (MSFT), and Intel (INTC), citing a rising mobile computing world.

He also mentioned his firm was exploring a concept on the short side he called a 'paperless office' where people are all using iPads and people don't need/use paper as much.  He says that, "A lot of the companies stuck in the desktop/printer world are going to have a tough time going forward."


On Media & Content

Laffont's content theme focuses on smartphones and how everyone will have one eventually and want to consume content on those devices (citing Netflix (NFLX), HBO Go, ESPN).  He thinks the world will move towards content being monetized in very different ways.  He said he likes Time Warner (TWX), CBS (CBS), and News Corp (NWSA).


Embedded below is the Bloomberg TV video of Philippe Laffont's appearance:



To see the rest of Coatue's portfolio, head to the new issue of our Hedge Fund Wisdom newsletter that was recently released.

What We're Reading ~ Analytical Links 2/13/13

On knowing a company's relevant metrics and the investment thesis [MicroFundy]

The great equity rotation myth [CapitalObserver]

Thorp and Buffett on beating the market [Abnormal Returns]

Secular bear market 'hibernation' [The Big Picture]

Bond convexity and price risk [Business Insider]

Where are we in 2013? [Joe Kusnan]

The biggest housing bubble in the world is in Canada? [The Atlantic]

Should you gamble on Tropicana Entertainment? TPCA [Seeking Alpha]

Valero (VLO) updates its CST Brands spinoff [StockSpinoffs]

Hewlett Packard (HPQ) board studying break up [Quartz]

Bullish pitch on Merck (MRK) [Barrons]

Beating the market by buying back stock [Fortune]

A third of student loan debt belongs to subprime borrowers [WSJ]

Industrial revolution: The insourcing boom [The Atlantic]

Insider selling picks up [Marketwatch]

Create your own Apple (AAPL) stub [Brooklyn Investor]

Mexican banks: from tequila crisis to sunrise [Economist]

Jim Chanos on Shorting PC's, Herbalife, China & More: Interview

Kynikos Associates' founder Jim Chanos recently sat down with Reuters to talk about why he's shorting the personal computer industry, China's debt load, and other topics.  He started by talking about what he's looking for as a short seller:

Chanos points to reading SEC filings as a must, saying that "it's amazing how many investors don't do that... it's a must.  Those documents exist for a reason." He looks for an exodus from a company, a large amount of stock sales, companies impacted by technological change (citing the internet as a perfect example).


Why Chanos Is Short PC's

Hewlett Packard (HPQ) is one of his largest shorts and Chanos says that the company has a lot of 'baggage' due to mistakes made by previous management (acquisitions etc).  He also points to the company's lack of investing in research & development as they've missed mobile and just cutting costs to create value isn't enough.

"while we look at financials in the rear view mirror, you can't forget to look out the windshield."


On Herbalife (HLF)

Chanos hasn't publicly commented on Herbalife (HLF) but notes he's studied multi-level marketing and that the important thing to focus on is, "How much of a product is sold through?  Is the customer actually using the product?"

Bill Ackman is short Herbalife and then Dan Loeb is long HLF so this has been a highly active situation.  As to who will ultimately be right, Chanos believes that it will be whomever can prove whether the business proposition is good.


On China

Kynikos has been short since 2009 and they haven't changed their thinking.  Chanos says the thing to worry about is how China keeps adding more debt to keep the growth going. 

He's short Chinese banking companies, property developers, cement companies and the like.  He notes that the other way to play it is via shorting materials like iron ore companies.  We've posted David Einhorn's short thesis on iron ore as well.


Chanos' Equities Outlook

He says that he's "a little less sanguine than I was two years ago... now we've had a pretty good run and things aren't so cheap anymore.  We're getting a little bit more cautious on prospects for US equities."


On His Biggest Mistake

Chanos remembers his biggest mistake as shorting AOL, saying that "it underscores the need to monitor risk on the short side.  You have to be much more aware because of the unlimited and un-ending nature of the liability on the short side.  We were short AOL at $8 and covered our last share at $80.  We were short it for accounting reasons."

Chanos went on to note that "you have to be very careful of not shorting concepts and being short companies."


Embedded below is the video of Chanos' interview:



For more on this noted short seller, see also Chanos' 2 short ideas from the Sohn London conference.

Jim Chanos Still Short China, Talks Other Positions (Interview)

Jim Chanos appeared on CNBC this morning to share his latest thoughts on the market and his positioning.  The Kynikos Associates hedge fund founder said that 20% of his global short fund is China.  We've posted up the hedge fund China bear thesis before as Chanos notes it's a credit boom over there.

Why He's Short China

He's been quite patient with his China short and it's paid off.  He noted that "we get criticized that China's not in smoking ruins ... we've done just fine."  Chanos says that corporate profits are imploding in the country.

He points out that while China's exports are important, their imports are also very relevant to watch.  While the trade export balance has been decreasing (not a new phenomenon), capital is also leaving and that's a new development Chanos drew attention to.

Lastly, he notes that he wouldn't trust any accounting in China and he could spend an hour talking about that issue alone as corporate accounting is that bad over there.

Chanos' Other Shorts

In regards to what else he's been shorting, he continues to dislike Hewlett Packard (HPQ).  He's long Microsoft (MSFT) and Oracle (ORCL) as hedges to that stake.

Chanos again addressed the notion of global value traps (his presentation via that link).  He says you want to be short printers and ink.  The cloud is fundamentally changing the tech landscape.

On the financial side, he likes to use the term "deleveraging credit python,"  noting that China, Europe, and the US are the three to watch.  In banking, they're long JPMorgan (JPM) and Citi (C).  For the other side of the coin, we recently detailed why Bill Ackman sold Citi.  Kynikos has also been short Chinese and Spanish banks.

Back in 2007 and 2009, Chanos was short healthcare but he no longer is short.  Though he says that longer term, healthcare is a huge issue.

Embedded below are the videos from Chanos' TV appearance this morning.  Video 1 on China:



Video 2 on tech companies & banks:




For more from the well known short seller, check out:

- Chanos on the psychology of short selling

- Chanos on the power of negative thinking

Delivering Alpha Best Ideas Panel: Cooperman, Chanos, Feldstein & More

CNBC and Institutional Investor's Delivering Alpha Conference is going on today and we wanted to aggregate the highlights.  The "best ideas" panel included Omega Advisors' Leon Cooperman, Kynikos Associates' Jim Chanos, BlueMountain Capital's Andrew Feldstein, Queen Anne's Gate Capital's Kathleen Kelley, and BlackRock's Robert Kapito.

From the conference, we've also posted up the global opportunities panel as well as the chasing yield panel.


Leon Cooperman (Omega Advisors):  He pitched going long US stocks and called them the best house in the financial neighborhood, a tune he has been singing for well over a year.  However, he did make an excellent point that the maximum "pain trade" is going higher as tons of people are sitting on large sums of cash earning nothing. 

As for specific names he likes: Capital One (COF), Express Scripts (ESRX), Halliburton (HAL), Gannett (GCI), Kinder Morgan (KMI), MetLife (MET), Qualcomm (QCOM), Watson Pharma (WPI) and Western Union (WU).  He also likes AIA Group (1299.HK) traded in Hong Kong.

The Omega Advisors founder also continued to bash bonds, saying "buying US bonds right now is like walking in front of a steam roller and picking up dimes.  It's just not a good policy."

As far as the election goes, he thinks that if Romney wins, the market will spike by 150 points, but if Obama wins, it drifts lower. For more from the Omega man, we just posted up Leon Cooperman on 14 attributes that make a good portfolio manager.


Jim Chanos (Kynikos Associates):  The noted short-seller was out again negative on tech companies.  He mainly pitched the bear case on Hewlett Packard (HPQ), calling it a value trap.  We just recently highlighted Chanos' presentation on global value traps where HPQ was highlighted among other names.

He says that "when you lose the paradigm shift, you spend an awful lot of money defending what you have."  He compared HPQ to Eastman Kodak as the company is in declining businesses.

Chanos also touched on how instead of giving cash back to shareholders, companies will make value-destroying acquisitions.  He cited HPQ's buy of Autonomy last year.  The Kynikos man argues that HPQ has overspent on acquisitions and they're hiding research & development expenditures through them.

He's also negative on Dell (DELL) saying that the company finances its subprime customers (financing their revenue growth).  For more on Chanos we just recently posted up his thoughts on the psychology of short selling.


Andrew Feldstein (BlueMountain Capital):  He likes less liquid credit, angling for 8-12% returns over a 3-7 year time horizon.  He says you have to be patient as this opportunity is available due to everyone's obsession with liquidity (i.e. don't put your money here if you don't have an appropriate time horizon).  He mentioned bonds such as Prospect Medical if you can buy and hold.  Feldstein also mentioned he's less excited about legacy distressed assets in Europe.


Kathleen Kelley (Queen Anne's Gate Capital):  Formerly of Tudor and Kingdon, she pitched two ideas: short the British pound (against long US dollar) as well as short platinum, targeting 20-30% moves to the downside.  She wants to be long the USD against the sterling because the USD can be a commodity currency.

She also likes shorting platinum as there's an oversupply due to slowing Euro auto sales.  At the Ira Sohn conference two months ago, Ospraie's Dwight Anderson pitched going short platinum as well (in addition to going long palladium).


Robert Kapito (BlackRock):  He's going for the "income hog" approach by focusing on equity dividend funds, dividend stocks like AT&T (T), Verizon (VZ), Merck (MRK), Johnson & Johnson (JNJ), high yield bond funds (or individual issues from Sprint, Ally) and municipal bonds such as the San Francisco Airport, New Jersey Tolls.  He thinks that default worry surrounding munis is "overrated."


Sources: Notes sent by readers, II's blog, @iimag,  @ldelevingne, @footnoted, @aarontask

For more from Delivering Alpha, head to the global opportunities panel (featuring Richard Perry) as well as the hunt for yield panel (featuring Marc Lasry)

Jim Chanos' Presentation on Global Value Traps: CNX, PBR, HPQ, CSTR, SAN & FMG

Emailed in from a reader, today we're posting up Jim Chanos of Kynikos Associates' presentation entitled 'A Search For Global Value ... Traps!" 

He gave the presentation this past week at the VALUEx Vail conference, an event put on by Vitaliy Katsenelson, a CIO who made our list of top finance people to follow on Twitter.  You can follow Vitaliy on Twitter here.

In Chanos' presentation, the hedge fund manager outlines how investors can separate value stocks from value traps.  He specifies common characteristics of value traps as:

- Cyclical and/or overly dependent on one product

- Hindsight drives expectations

- Marquis management and/or famous investor(s)

- Appears cheap using management's metric

- Accounting issues

This is not the first time we've seen Chanos talk about his focus on value traps as we've posted up how he's been shorting Petrobras and Fortescue.  And in a separate interview he talked about his shorts of Coinstar and Dell.

In his latest presentation, Chanos outlines the bearish and "value trap" thesis associated with the following names:

U.S. shale explosion: Consol Energy (CNX), national oil company: Petrobras (PBR), computing revolution: Hewlett-Packard (HPQ), digital distribution: Coinstar (CSTR), troubled national balance sheet: Banco Santander (SAN SM), and  iron ore rush: Fortescue (ASX:FMG).


Embedded below is Chanos' entire presentation with his thesis on each name outlined:




For more on Chanos, yesterday we posted up his bearish China stance as well as an in-depth interview with Columbia Business School.

Notes From SALT Conference: Barry Rosenstein, Leon Cooperman & Joel Greenblatt's Panel on Stocks

In Las Vegas today at the SALT Conference, the talking stock panel focused on perspectives from value investing legends such as Leon Cooperman of Omega Advisors, Barry Rosenstein of JANA Partners, and Joel Greenblatt of Gotham Capital.


Barry Rosenstein of JANA Partners talked about how he's been involved in activist investing since the 1980s and thinks today's environment for it is the best he's seen.  They've been an activist in McGraw-Hill (MHP).  And though not an activist stake, we've posted JANA's thesis on Barnes & Noble, one of their latest investments.

He also touched on his firm's lack of exposure to financials, noting that the sector is too hard to analyze.  Rosenstein will be presenting an investment idea at the NYC Value Investing Congress in October. Market Folly readers can receive a discount here with code N12MF3.


Leon Cooperman of Omega Advisors reiterated his stance that US government bonds are fundamentally overvalued.  We've highlighted his case against bonds numerous times before.

In terms of stock picks, he has allocated capital to financials via AIG (AIG), E*Trade (ETFC), Capital One (COF) and Western Union (WU). On the political side of things, he deemed this upcoming election one of the most important in his lifetime.



Joel Greenblatt said he likes tech giants Microsoft (MSFT) and Hewlett Packard (HPQ).  He also mentioned Wellpoint (WLP) and CVS Caremark (CVS).  His book You Can Be a Stock Market Genius, despite its somewhat cheesy title, is recommended by tons of top hedge fund managers.


Whitney Tilson, the moderator of the panel, said his hedge fund T2 Partners was buying more JPMorgan Chase (JPM) TARP warrants this morning.  We also recently posted T2's presentation on AIG.

For more notes from the SALT Conference, check out:

- Identifying opportunities in emerging markets with John Burbank

-  Notes from panel with Kyle Bass, Dmitry Balyasny & Steven Tananbaum

- Risk panel with Phil Falcone and Eric Sprott



The above was compiled from notes sent in along with help from live tweets from: @katyawachtel & @realrobcopeland

Joel Greenblatt: The Big Secret For Value Investors (Presentation From Value Investing Congress)

At the Value Investing Congress today, Joel Greenblatt of hedge fund Gotham Capital gave a presentation entitled "The Big Secret For Value Investors".

Be sure to check out all of our notes from the Value Investing Congress.


Joel Greenblatt (Gotham Capital): Value Investing

He started out with a review of the concepts in his book, The Little Book That Still Beats the Market. He says you want stocks that are “cheap and good” and used the Compustat database to rank them by the two measures. Cheap: EBIT/EV. Good: EBIT/ (Net WC + Net fixed assets) (return on tangible capital).

Updated results through 2009: Decile 1: +15.2%, bottom decile: -0.2%. For 20 years ending 12/31/10: SPX annualized 9.1%, 11.8% on equal weight, “Value 1000” value-weighted index is 16.1%. Same Beta as SPX, same std dev. 1.01 Beta vs. 0.99 SPX.

Now, the current situation, and the meat of the presentation: A week ago, the Russell 1000 had average FCF of 9.2% (in the 94th percentile toward cheap!) Looking backwards, cheaper than 94% of periods over the last 20 years and that correlates with a 15-20% return over next one year (market up 5% over week since slide finished) "on only 10-15% left, but still pretty nice."

Average FCF of Value 1000 a week ago was 13.7% and was cheaper than 93% of the last 20 years, which correlates with a year forward return of 30-35% for value index. Greenblatt said that "Not only is the market cheap, but the value stocks are even cheaper."

Large cap long/short portfolio is in the 82% percentile- very big spread between long and short opportunity. ROIC long 59.4%, shorts 4.8%. Arguments against stocks being cheap (playing devils advocate): one argument is that we are at peak operating margins, but he showed a graph that indicated it is unclear what the real mean operating margins should be. The second argument is return on tangible capital continues to climb. In addition, outsourcing of factories, moving to a service economy, so tangible capital may not be the right way to look at it, and again it's unclear where the mean level is. He also showed a graph of tangible capital per dollar in sales is declining to 35 cents from 50 cents, 20 years ago.

Some of companies currently in the value 1000: Gamestop (GME), Aeropostale (ARO) ~ (Revolting companies, you’d never want to buy, he joked), Hewlett Packard (HPQ) ~ terrible, but selling at 5x eps, Dell (DELL), Microsoft (MSFT), General Dynamics (GD), Wells Fargo (WFC), and Merck (MRK). For every name, he mentioned why they are terrible, only half-joking. Part of the reason this works is “it’s really hard to buy these companies.”

He says that the current fixation on short-term returns causes managers to avoid buying cheap companies, because they need the ones that are doing well right now. Buying these stocks with very low expectations gives you a chance for asymmetric returns on the upside if they do even a little bit better than expected. He expects this “time arbitrage” will continue to be exploitable. He is very optimistic for the next year.


Q&A Session:

1. Role of dividends? He's indifferent in his strategy.

2. How does he incorporate financials now, he used to exclude them? He now ranks the financials separately, and adds to index if they are cheap, but he didn’t give what metrics he used.

3. Question about Michael Burry. (Background: In “The Big Short”, writer Michael Lewis made Greenblatt out for a villain for taking money from Burry even as Burry was right.) Greenblatt was a little annoyed by the question: “Michael Lewis has never let the facts get in a way of a good story. What they got wrong in the book is Burry wanted to side pocket both mortgage and corporate CDS... we did not want him to side pocket the liquid corporate CDSs … only reason we took money from him was we were getting redemptions.”

4. Where does he see the market now? He’s not a market timer, but he would argue for raising exposure to stocks now if asked.

5. Can you use the value screen and really juice returns by using further fundamental analysis? Answer: we were small, had 6-8 concentrated names, that’s why we made 40% returns - it’s impossible on large amounts of money or a very diversified portfolio. This solution is good for a very diversified portfolio, same beta as the market and beats the SPX. We’ve tried, but haven’t been able to beat the indexed approach. “We’re pretty good at picking stocks, so it’s hard to do.”

6. Large cap stocks are pretty cheap, this is an interesting time- HPQ at 5 times earnings. Bond bubble, even bigger than the stock bubble- which is crazy. Still plenty of opportunity in special situations for smaller funds.


About Joel Greenblatt: He manages Gotham Capital and saw 40% annualized returns for 20 years. He's the author of the new book The Big Secret for the Small Investor: A New Route to Long-Term Investment Success. And for aspiring investors, numerous prominent hedge fund managers such as Seth Klarman have recommended Greenblatt's other book: You Can Be a Stock Market Genius.

You can view our notes from the Value Investing Congress for the rest of the hedge fund manager presentations.

Jeff Saut Sees Tactical Bull Market, Still Cautious Near-Term

Raymond James' Chief Investment Strategist, Jeff Saut, is out with his weekly market commentary. As we pointed out last time around, he was cautious but a buyer on dips. His thoughts remain unchanged in this regard. Hedge funds also agree as they've reduced equity exposure.

However, this time around he revealed some interesting thoughts about where he thinks we are in the overall stock market cycle. He points out that according to Dow Theory, this is a bull market. But when asked if it would be tactical or secular, he replies that, "Personally I think it is tactical within the context of the broad trading range we have been experiencing since the turn of the century."

And although he makes this distinction, he can't help but pay attention to the potential warning signs flashing at him. He notices numerous similarities between the current market and the action before the April 2010 market top. As such, he is cautious in the short-term. However, he does not see another 17% decline like last year's drop in May.

Overall, Saut is still a buyer on dips (if they ever come). He is bullish on technology and specifically likes CA (CA), Hewlett-Packard (HPQ), and NII Holdings (NIHD). Additionally in the bank sector, he suggested ideas of Iberiabank (IBKC), Peoples United Financial (PBCT), and Huntington Bancshares (HBAN).

Embedded below is Jeff Saut's latest market commentary:



You can download a .pdf copy here.

For more recent research from this shop, head to the analysts' best stock picks for 2011.

Stocks vs Bonds & Risk vs Reward: Value & Risk in the Eye of the Beholder

Herbert Abramson and Randall Abramson's Trapeze Asset Management is out with their second quarter market commentary and in it they touch on two choices that often confound investors: stocks versus bonds and risk versus reward. They argue that both stocks and bonds involve risk but given the current potential reward each offers, the choice is a no-brainer: stocks. Given the low rates associated with bonds these days, they believe these vehicles are more akin to cash than investments.

In particular, Trapeze (like many other value investors) have shifted their focus to undervalued large-cap stocks. The interesting dynamic here is that this is essentially the first time investors have been able to purchase such high quality companies at what many are deeming cheap prices. You'll recall that during the panic, cyclical and leveraged businesses declined the most and then subsequently rallied the most during 2009. High quality stocks were seemingly left behind and this theme has been highlighted by numerous managers and strategists including Jeremy Grantham, Legg Mason's Bill Miller, hedge fund manager Whitney Tilson, and many more.

Trapeze interestingly intertwines compelling valuations with contrarianism by highlighting the current investor distaste for equities. Just yesterday we highlighted how market strategist Jeff Saut viewed massive equity fund outflows as a possible contrarian indicator. Investors are fearful of numerous economic factors ranging from unemployment, to a double-dip recession, to deflation. This resulted in a stampede into bonds. Such positioning requires a dose of macro outlook and Trapeze's viewpoint appropriately falls in line with the "no double-dip" crowd.

Trapeze writes, "It has been argued that, if one takes a longer term horizon to smooth out the fluctuations, equities can be viewed as long-term bonds with an earnings yield in lieu of a bond yield and often with a fixed dividend yield, mostly reliable, mostly growing. In the current environment if one takes, say, a 5-year horizon to even allow for the possibility of an interim double-dip recession with a lower stock market from a poorer outlook for earnings, stocks should still be the preferred asset class in that extended period."

Many investors have often quoted Warren Buffett in saying, "Be greedy when others are fearful." Investors certainly seem more fearful of equities than they have been in quite some time. While equities haven't experienced extreme declines in absolute value, many investors have traded in their stocks for the supposed safety of bonds. And the problem with that, Trapeze argues, is that cash is desperately searching for return and yield; something that is currently better found in stocks than bonds. They feel that eventually all of the cash and fixed income parked on the sidelines will seek higher returns, eventually ending up back in equities.

In terms of specific stocks, Trapeze offers Clorox (CLX), Aflac (AFL), Kroger (KR), Aetna (AET), Hewlett Packard (HPQ) and Jack in the Box (JACK) as some of the large-cap stalwarts that they've been playing. Additionally, they also continue to hold positions in Oracle (ORCL), IBM (IBM), Walgreens (WAG), Wal-Mart (WMT), Mastercard (MA) and more.

For the bullish case on equities, we highly recommend reading Trapeze Asset Management's second quarter letter to investors in its entirety, embedded below:



You can download a .pdf copy here.

In the end, it's an epic and ongoing debate: stocks versus bonds, risk versus reward. Add in your stance on the macro environment and the decision is essentially made for you. However, what Trapeze is trying to illustrate is that such extreme pessimism (among other factors) can be interpreted as an opportunity for contrarian optimism. We'll end with another quote from Trapeze's letter: "Like beauty, value and risk too are often in the eye of the beholder."

To see what stocks prominent hedge funds have been investing in, head to our brand new quarterly newsletter, hedge fund wisdom by market folly (receive a free sample here). And if the above article is just too bullish on equities for you, last month we presented the opposite side of the coin with David Gerstenhaber's hedge fund Argonaut Capital who thinks that deflation is the greater risk.

Lee Ainslie's Maverick Capital Bet Big On Technology Stocks

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.

Next up is Lee Ainslie's hedge fund firm Maverick Capital. Ainslie learned his ways under the guidance of hedge fund legend Julian Robertson and is a member of the Tiger Cub family. (You can view a Tiger Cub family tree here). As such, Maverick is a part of the Tiger Cub portfolio clone created with Alphaclone that is seeing great returns and is comprised of holdings widely held by all of the Tiger Cub hedge funds.

Maverick manages well over $8 billion and focuses on straight up stock picking on both sides of the book (long and short) but they do not employ pairs trades. They have six industry heads and each team handles their respective sector. Risk management is a big focus at Maverick and position sizes typically don't go above 5-8% of the portfolio. They focus on value and growth at a reasonable price (GARP) investments and they like to compare enterprise value to sustainable free cash flow. To learn more about this hedge fund, check out our profile/biography on Lee Ainslie & Maverick.

Keep in mind that the positions listed below were Maverick's long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.


Some New Positions
Brand new positions that they initiated last quarter:
Corning (GLW)
Qualcomm (QCOM)
Citigroup (C)
Macys (M)
CVS Caremark (CVS)
Itron (ITRI)
Pfizer (PFE)
Bank of America (BAC)
Microsoft (MSFT)
Williams Sonoma (WSM)
Rovi Corporation (ROVI)
Google (GOOG)
Equinix (EQIX)
Whole Foods (WFMI)


Some Increased Positions
Positions they already owned but added shares to:
First Solar (FSLR): Increased position by 307.5%
Visa (V): Increased by 88.2%
Apollo Group (APOL): Increased by 49.4%
Gilead Science (GILD): Increased by 48.9%
Marvell Technology (MRVL): Increased by 42.9%
Priceline (PCLN): Increased by 42.2%
Berkshire Hathaway (BRK.B): Increased by 40%
Berkshire Hathaway (BRK.A): Increased by 37%
Amgen (AMGN): Increased by 31.3%


Some Reduced Positions
Stakes they sold shares in but still own:
Gap (GPS): Reduced position by 46.7%
Lorillard (LO): Reduced by 44.9%
PepsiCo (PEP): Reduced by 35.8%
Lender Processing (LPS): Reduced by 26%
Palm (PALM): Reduced by 22.3%
America Movil (AMX): Reduced by 18.9%
Davita (DVA): Reduced by 18.8%
Apache (APA): Reduced by 18.7%
Covidien (COV): Reduced by 9.9%


Removed Positions
Positions they sold out of completely:
Wyeth (WYE)
Walgreen (WAG)
Netapp (NTAP)
Research in Motion (RIMM)
Mastercard (MA)
State Street (STT)
Eaton (ETN)
Leap Wireless (LEAP)
CTrip (CTRP)
Hanesbrands (HBI)
Discovery Communications - Series C (DISCK)
Jetblue (JBLU)
Fifth Third Bancorp (FITB)
Finish Line (FINL)
Orthofix (OFIX)
BPW Acquisition (BPW-U)
Liberty Media Corp - Series A (LCAPA)
MSCI (MXB)
Officemax (OMX)


Top 15 Holdings by percentage of assets reported on 13F filing

1. Apple (AAPL): 3.38%
2. Hewlett Packard (HPQ): 3.37%
3. Corning (GLW): 3.1%
4. Qualcomm (QCOM): 2.8%
5. Priceline (PCLN): 2.52%
6. Apollo Group (APOL): 2.5%
7. JPMorgan Chase (JPM): 2.5%
8. Gilead Sciences (GILD): 2.48%
9. Citigroup (C): 2.46%
10. Macys (M): 2.43%
11. Marvell Technology (MRVL): 2.42%
12. Amgen (AMGN): 2.3%
13. Liberty Media (LMDIA): 2.28%
14. Progressive (PGR): 2.21%
15. First Solar (FSLR): 2.2%
    

Maverick added to technology names the most on a quarter over quarter basis. Four of their top 10 holdings were brand new positions just added. Half of those were technology names (Qualcomm & Corning) and they were Maverick's third and fourth largest holdings respectively. Not to mention, Maverick's top two holdings were also tech plays in Apple and Hewlett Packard. Do you see a theme here?

Lee Ainslie's hedge fund also added largely to shares of Priceline, Apollo Group, and JP Morgan Chase. This is intriguing mainly because other 'Tiger Cub' hedge funds were buying the exact same names (see Andreas Halvorsen's Viking Global which we just covered this morning). A few other names Ainslie added to that are more unique to their portfolio include Gilead Sciences as well as First Solar, a name that they tripled their exposure in.

We also want to focus on their new portfolio addition in CVS Caremark. Way back in the first quarter of this year, Maverick sold out of CVS in favor of competitor Walgreens. Now, fast forward to the third quarter of this year and we see that Maverick has done the opposite and has sold completely out of Walgreens and started a new stake in CVS Caremark again. Possibly the most interesting aspect of this whole 'switcheroo' is that Lee Ainslie was at an investing conference in late October at the University of Virginia and he mentioned one of his current favorite plays was CVS. He obviously just added this name in the third quarter and then a few days after the conference on November 5th we saw shares of CVS drop from $36 to $28 and wondered if Ainslie was buying or not. Shares are now trading around the $30 mark. We'll definitely be interested to see what Ainslie did with this position when the fourth quarter portfolio disclosures are released given that he has been flip-flopping on various pharmacy plays throughout the year.

Below are some graphical illustrations of the changes made to Maverick Capital's portfolio courtesy of Drew Robertson at Financial Research Station:

(click to enlarge)

And also:

(click to enlarge)

Assets from the collective holdings reported to the SEC via 13F filing were $8.3 billion this quarter compared to $6.4 billion last quarter, so they deployed almost $2 billion into long US equities on a quarter over quarter basis. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Also, please again note that these positions were as of September 30th so two months have elapsed and they've undoubtedly shifted around their portfolio since then.

This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. We've already covered Seth Klarman's Baupost Group Bill Ackman's Pershing Square, Stephen Mandel's Lone Pine Capital, Dan Loeb's Third Point LLC, David Einhorn's Greenlight Capital, John Paulson's firm Paulson & Co and Andreas Halvorsen's Viking Global so check back daily as we'll be covering new hedge fund portfolios.