Price Signals

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Wednesday, July 18, 2012

Jim Chanos: Hewlett Packard 'Ultimate Value Trap'

"What they will tell you is that the stock is cheap, with a forward P/E of 5, an enterprise value to EBIT of roughly 6 times, and great free cash flow, free cash flow yield of 10.7% using the latest 12 month figures, and a company that’s buying back lots of stock. All the classic signs of a great value situation, hopefully. There’s a fly in the ointment. In the case of Hewlett-Packard and a number of other well-known marquee technology companies, they are hiding their R&D spending through acquisitions. This is an important concept that a lot of people miss. If you look at HP’s revenue stream, it’s basically flat over the past four or five years, their cash flow is basically flat over the past four or five years. But they have done $36 billion in acquisitions over that time frame. Those acquisitions have enabled them to maintain a revenue base and see a declining cash flow base. Those are maintenance capital expenditures or maintenance R&D hidden as acquisitions ... In addition, the balance sheet has been destroyed here."

“People will still buy PCs. It just won’t be a very profitable business”
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Labels: CNBC, Delivering Alpha, HP, Jim Chanos, Video

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  • ▼  2012 (1238)
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      • Harry Dent sees Dow 3,000
      • Carl Weinberg: Europe Near a Depression-Like Event
      • Sean Egan on European Sovereign Debt, Ratings
      • Delivering Alpha 2012: Henry Kravis
      • Ruchir Sharma: 10 reasons to believe in China slow...
      • BofA: Italy Has Most Reasons to Leave Euro
      • Richard Clarida Says Policy Gridlock Largest Chall...
      • Morgan Creek: How to Tap Into Long/Short Hedge Funds
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      • Nokia Looks Like a Company in Decline
      • Philippe Laffont's top tech picks
      • Bruce Richards (Marathon) on the search for yield
      • OTPP on Private Equity Returns
      • Leon Cooperman speaks at Delivering Alpha
      • Nathan Sandler: Alpha in Emerging Markets
      • Bill Ackman on his P&G position
      • Roubini: Euro crisis a "slow motion train wreck"
      • Jim Chanos: Hewlett Packard 'Ultimate Value Trap'
      • Richard Perry on Mortgages
      • Richard Perry Sees Profit Potential in Europe
      • Paul Donovan: 1930's Wasn't a Buying Opportunity
      • Scott Kalb on Sovereign Wealth Funds
      • Fund Manager Sees Limited Lending Growth in West
      • Gary Shilling on Bernanke Testimony, US Retail Sales
      • Volcker Says Fed Has `No Magic Bullets'
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      • Marc Faber Reacts to China's GDP
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      • Pat Dorsey on the earnings outlook
      • EA CEO Bullish on Digital
      • 'Black Swan' Hedging Strategies
      • One-On-One with Marc Andreessen
      • David Rosenberg on Consuelo Mack WealthTrack
      • Jason Trennert on Goldman Sachs
      • David Stockman: We're Heading Toward Recession
      • John Mauldin on Yen, Euro, Fed, Strategy
      • Roger McNamee on Tech's Next Big Thing
      • Neil Jones (Mizuho): Hunt for Safe Havens in Europe
      • Long Warren Buffet Interview on Bloomberg
      • JPMorgan: Italy in Much Better Shape Than Spain
      • Gordon Chang: China Could See Zero Growth
      • Jim Grant on CNBC
      • Greenspan: US Economy, Fed Stimulus & Obamacare
      • Francesco Bongiovanni: Is 'Project Europe' Worth S...
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      • BRIC Countries Need a New Recipe for Growth
      • Spanish Govt at Risk From Austerity Cuts?
      • Buffett Sees Pick-Up in Residential Housing
      • Buffett on Europe's 'Fundamentally Flawed System'
      • Gus Sauter: French Bonds Secure Over Short Term
      • Howard Marks on Strategy, Europe, Real Estate
      • Dean Curnutt: Amount of Systemic Risk Is Staggeriing
      • Mohnish Pabrai presentation
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      • Brazilian FX Policy is Very Incoherent: Strategist
      • Andy Xie: Australia Could Become the Next Spain
      • Bethany McLean on Goldman Sachs
      • Krugman on How to "End This Depression Now"
      • Leo Hindrey on Facebook, RIM, News Corp, Economy
      • Bank of America's Misra on Bonds, Central Banks
      • Jack McCallum discusses the Dream Team
      • Chris Whalen: Bank Executives Not `Bad People'
      • Byron Wien: S&P May Top 1400 This Year
      • Steve Drobny on Hedge-Fund Investment Strategy
      • Passin on Investing in Kenya, Mongolia, North Korea
      • Ping Pong Phenom Takes a Swing at Buffett, Gates
      • Dan Alpert: China Slowdown Is Deflationary to US
      • Europe Has Japan-Like Characteristics
      • Rogers Says World Needs Euro to Compete With Dollar
      • David Rosenberg: Fiscal Cliff Risks Recession
      • Carl Icahn on Forest Labs, Navistar, Chesapeake
      • ECRI: U.S. Economy Is in Recession!
      • Gartman's Natural Gas Plays
      • The 'Freakonomics of Reality'
      • Buy Nokia on Weakness?
      • David Einhorn on CNBC
      • David Zervos on CNBC
      • Yen Is No Longer Funding Currency for Carry Trade
      • Investing in Myanmar, Mongolia, Mozambique
      • Myanmar: Open for Investment?
      • Adam Parker (Morgan Stanley) sees 15% drop in S&P
      • Roubini: 2013 `Storm' May Surpass 2008 Crisis
      • Jonathan Carmel: Germany is not a safe haven
      • Dennis Gartman: Earnings Will Be 'Boring Disconcer...
      • David Baran: Profiting from Japan M&A boom
      • (Video) Recent Jim Chanos interview
      • Malaysia to Keep Rates on Hold This Year
      • Michael Cuggino likes growth stocks
      • Rick Rule (Sprott): Riding the Energy Roller Coaster
      • Alexander Soros on Philanthropy, George Soros
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I'm an investment professional and have spent the bulk of my career in the investment management industry. I am a deep value investor, but I also move in and out of asset classes based on my macro outlook (typically 10-20 trades a year). I don't mind holding a big slug of cash even if it earns nothing in hopes of hitting that fat pitch (as I did in 2009). I've been watching our current economic train wreck with a mixture of fascination and dread. The pain is not over and the worst is still to come. Under a reckless Fed that has callously disregarded its duty to supervise the markets, we are slowly but surely heading towards a day of reckoning where we will see the global currency system realign, interest rates in the United States rise sharply, and our standard of living decline measurably.
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