Ask a Fool: Is Jim Chanos Right to Short Caterpillar?

Ask a Fool: Is Jim Chanos Right to Short Caterpillar?

As part of our "Ask a Fool" series, Fool analyst Brendan Byrnes answers a question from our Facebook page, "Is Jim Chanos Right in Shorting $CAT?"

Much of Chanos' short thesis is predicated on China. He believes that the commodities supercycle built on the back of the China infrastructure boom is ending. Chanos has long been a China bear, so this isn't surprising. He also points to the big writedown that Caterpillar recently had to take after accounting problems with its deal to acquire China-based Siwei.

While any slowdown in China equipment demand is obviously important to global demand, it's also important to remember that Caterpillar still only gets around 3% of its revenue from China.

Ultimately, the problem with Caterpillar has always been that so much of its future prospects of success or failure is out of its hands. The global economy, mining equipment demand, and commodity prices are just a few things that have a big impact on the company. Making matters worse, these are very difficult to forecast.

That doesn't mean that it makes Caterpillar a short; the company still boasts competitive advantages in the form of a strong brand name, quality dealer and service networks, and size advantages. As Brendan notes in the video below, this is a stock that he thinks both long and short investors should avoid for now until the picture becomes more clear.

More Foolish insight
The Economist compares this industry's disruptive invention to the steam engine and the printing press. Business Insider says it's "the next trillion dollar industry." And everyone from BMW, to Nike, to the U.S. Air Force is already using it every day. Watch The Motley Fool's shocking video presentation today to discover the garage gadget that's putting an end to the Made In China era... and learn the investing strategy we've used to double our money on these 3 stocks. Click here to watch now!

The article Ask a Fool: Is Jim Chanos Right to Short Caterpillar? originally appeared on

Brendan Byrnes owns shares of Caterpillar. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Originally published