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Caterpillar (CAT) Fundamentals Have Not Changed; Tesla/SolarCity “Makes No Sense”: Chanos

Jim Chanos runs New York-based hedge fund Kynikos Associates, which manages over $3.34 billion in assets. Mr. Chanos is famous for short-selling and is not afraid to speak his mind when it comes to his bearish stance on certain companies or even entire economies. In particular, Chanos has long been skeptical of the Chinese economy, which he thinks is doomed for a decline due to an impending real estate bubble burst.

Mr. Chanos recently talked about Caterpillar Inc. (NYSE:CAT), Tesla Motors Inc (NASDAQ:TSLA) and SolarCity Corp (NASDAQ:SCTY) on CNBC’s ‘Halftime Report’, giving his bearish take on these companies. Let’s find out the reasoning behind Chanos’ bearish outlook and see what other hedge fund managers think of them.

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Caterpillar’s Growth Prospects are Bleak

Jim Chanos is bearish on Caterpillar Inc. (NYSE:CAT), as according to him, the fundamentals of the construction equipment company have not changed since he first started betting against it. He said that Caterpillar’s stock was trading at about $80 when he first shorted it back in 2012, and the price is still in the same range today despite adjusted earnings estimates for the company’s 2016 and 2017 fiscal years being $15 and $18 respectively at that time, while the estimates today for those years have fallen to $3.50 and $3.60 respectively. Chanos thinks that the growth in commodities that happened in 2011 and 2012 was a “once-in-a-lifetime” phenomenon, and that there is serious overcapacity in the mining and construction equipment industry. Chanos thinks that the real estate and debt bubble in China has also not burst yet, which will lead to dire consequences for construction companies doing business there.

Jim Chanos
Jim Chanos

Caterpillar’s CEO Doug Oberhelman recently announced that he will step down by the end of the year amid the company’s record sales slump due to its overspending in equipment production and expansion. Oberhelman’s offensive expansion policy in China took a beating after an economic slowdown in the country and falling oil and commodities prices. Caterpillar Inc. (NYSE:CAT) is up by around 30% year-to-date. A total of 31 hedge funds tracked by Insider Monkey owned over $1.17 billion worth of Caterpillar Inc. (NYSE:CAT) shares at the end of the second quarter.

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On the next page we’ll discuss Chanos’ comments regarding Tesla and SolarCity.

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