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Jim Chanos, president and founder of Kynikos Associates, the world’s largest short-selling fund at $6.7 billion, recently gave a presentation at the annual Value Investing Congress in New York. The annual meeting is a place for value investors from around the world to network with other serious, sophisticated value investors, and benefit from the sharing of investment wisdom.
Mr. Chanos really made a name for himself after researching the accounting methods used at Enron and shorting the company before it collapsed. Now, Mr. Chanos has a new list of favorite companies to short.
Investing Insights: 5 Stocks Winning Despite Record Misery Levels.
He calls Exxon Mobil (NYSE:XOM) a “slow value leak in an era of rising production costs.” The company has “very quickly gone from net cash to net debt,” Mr. Chanos explained. In 2006, upstream capital expenditure was $16 billion, but by 2010 it had climbed to $27 billion. He also says that Exxon’s purchase of XTO was an expensive bet on natural gas (NYSE:UNG).
Due to a changing industry, the next company on the short list is GameStop (NYSE:GME). The company is a nationwide retailer of computer and console video games, from Microsoft’s (NASDAQ:MSFT) Xbox to Sony’s (NYSE:SNE) PlayStation. Mr. Chanos explains that GameStop’s physical store business model is being destroyed by the digital distribution transformation. He calls GameStop shares cheap. “Boy is it cheap. But boy is it in a bad business. This is one you’re going to think is cheap all the way down,” he says. Improving quality of low-priced digital games will continue to threaten the traditional $60 price point. For example, Apple’s (NASDAQ:AAPL) iPad has new games from Electronic Arts (NASDAQ:ERTS) for less than $10.
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