Not AI Or Magnificent 7: Short-Seller Jim Chanos Warns Investors Are Missing 'Absolute Insane' Valuations Of These Stocks
Portfolio Pulse from Shanthi Rexaline
Jim Chanos, a notable investor and short-seller, has raised concerns over the 'insane valuations' of certain industrial stocks, specifically pointing out Eaton Corporation Plc (ETN) and General Electric Co. (GE). Despite the market's focus on big tech and AI, Chanos warns that these industrial companies are trading at high multiples relative to their growth, with ETN at nearly 30 times its last twelve-month EBITDA and GE at nearly 40 times estimated earnings per share in its aerospace business. This comes amid a broader market rally and investor optimism, as reflected in the performance of the Industrial Select Sector SPDR Fund (XLI), which has seen an 11% year-to-date increase.
March 28, 2024 | 9:45 am
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Eaton Corporation Plc (ETN) is trading at nearly 30 times its last twelve-month EBITDA and six times its revenue, despite minimal revenue growth over the past decade.
Given the high valuation multiples relative to its growth, ETN's stock might face downward pressure as investors reassess the sustainability of such valuations in the context of Chanos' warning.
CONFIDENCE 75
IMPORTANCE 80
RELEVANCE 90
NEGATIVE IMPACT
General Electric Co. (GE) is trading at nearly 40 times estimated earnings per share in its aerospace business, despite only a 5% annual growth rate in that sector since 1999.
GE's high valuation in its aerospace sector, as highlighted by Chanos, suggests a potential overvaluation risk, especially given the modest growth rate, which could lead to a negative short-term impact on its stock price.
CONFIDENCE 75
IMPORTANCE 80
RELEVANCE 90
NEUTRAL IMPACT
The Industrial Select Sector SPDR Fund (XLI) has seen an 11% year-to-date increase, reflecting investor optimism in the industrial sector.
While XLI's performance indicates strong investor sentiment in the industrial sector, Chanos' warnings about specific stocks could introduce volatility. However, broader sector trends and potential rate cuts by the Federal Reserve might mitigate immediate negative impacts.
CONFIDENCE 70
IMPORTANCE 60
RELEVANCE 70