For two years and now going on a third, the Delivering
Alpha conference co-hosted by Institutional Investor
and CNBC has brought together the finest financial minds
to discuss the pressing issues of the day and share their acute
understanding of the markets. Some, like
Omega Advisors founder Leon Cooperman, strike with
remarkable accuracy. The soon-to-be-septuagenarian scored a
perfect ten out often with his stock picks on last years
Best Ideas panel.
Others can remind us just how difficult professional
investing can be, even for a seasoned veteran.
Sitting alongside Cooperman and other luminaries, James
Chanos laid out his best idea for 2012: Shorting the stock of
PC maker Hewlett-Packard Co.
That Chanos touted a short trade as his best idea should
come as no real surprise. The name of his hedge fund firm, Kynikos, is Greek for cynic, and he was on
the right side of one of the more newsworthy stock collapses in
recent history Enron. Chanos was one of the earliest
traders to make sense of the Houston-based energy giants
suspect accounting via mark-to-model pricing, and profited
But for now, albeit a year is only a year, it seems that
Chanoss bearish outlook on the tech company
founded in a one-car garage in Palo Alto that some call the
birthplace of Silicon Valley has missed the mark.
Since Chanos took the Delivering Alpha stage and called HP
the ultimate value trap, the companys stock
has jumped almost 30 percent, from $19.30 to about
Noting a fly in the ointment in the figures that
could convince analysts the stock was in good condition from a
value perspective, Chanos claimed that HP, among other unnamed
tech companies, was hiding a lack of research-and-development
spending through a breadth of acquisitions. Revenue and cash
flow had been flat for the past four or five years, he said,
while during the same timeframe the company had spent $37
billion on acquisitions.
One of those acquisitions British software maker
Autonomy, which HP paid more than $10 billion for in 2011
is viewed as a disaster. Last November HP announced a
write-down of $8.8 billion for Autonomy after uncovering what
it said were questionable accounting practices used by the U.K.
company to misrepresent its value. The news sent HPs
stock tumbling down to a multiyear low closing price of $11.71
on November 20, 2012.