Apple Inc (NASDAQ:AAPL) is the most popular stock among hedge funds. Billionaire David Einhorn bought the stock two years ago when it was trading below $250 per share. Several hedge fund managers joined him since then and Apple Inc (NASDAQ:AAPL) has been one of the most popular stocks among the smart money. Not every hedge fund manager is bullish about Apple though. Legendary short seller Jim Chanos, who singlehandedly vindicated short sellers by revealing the ongoing fraud at Enron and WorldCom, is skeptical. Like David Einhorn, he grew up in Milwaukee. Chanos graduated from Yale with an economics degree. He has been in the business of short selling for more than two decades now. Nowadays he is shorting value traps Hewlett Packard (NYSE:HPQ) and Dell Inc (NASDAQ:DELL). Here is how we explained his thesis in an earlier article:
Chanos believes that Hewlett-Packard Company (NYSE:HPQ) and Dell Inc. (NASDAQ:DELL) have missed the fundamental shift from personal computers to Apple Inc (NASDAQ:AAPL)’s tablets and phones. The infamous short seller believes that these companies have made risky acquisitions, like Dell’s purchase of Autonomy for example. If these acquisitions were recognized as R&D or CAPEX, these companies’ positive cash flows would disappear. Hewlett-Packard has been taking restructuring charges every year, and restructuring often isn’t enough to save a fundamentally flawed business.
To hedge his short positions in Dell and Hewlett-Packard, Chanos is long Microsoft Corporation (NASDAQ:MSFT). Chanos believes that Microsoft “gets it,” and is transforming themselves into a software, hardware, and solutions company. He believes that the company’s new tablet will be priced at a disruptive price point to existing competitors in the marketplace.
Chanos didn’t hedge his short positions in Hewlett-Packard and Dell with Apple Inc (NASDAQ:AAPL), because he believes that it has already climbed so high this year, and he was afraid of a near term pushback.
“Apple would be the ideal hedge and I guess a lot of people, we’re getting afraid of heights. It has had an enormous run. …Something about it is holding us back in that it’s had such a run,” Chanos said in a Bloomberg TV interview earlier this week. There you have it. Jim Chanos is afraid of the huge increase in Apple Inc (NASDAQ:AAPL)’s stock price.
Disclosure: I am not afraid and have a long position in Apple Inc (NASDAQ:AAPL). You can check out Jim Chanos’ stock picks here.