Chanos Makes Bet Against Caterpillar

Shares of Caterpillar tumbled on Wednesday after the prominent short-seller James S. Chanos said he was betting against the company.

Caterpillar, the giant construction equipment maker, has been an investor favorite over the years, a point Mr. Chanos acknowledged. But he said the company was vulnerable to movements in commodity prices and had questionable accounting.

The stock fell more than 2 percent in early afternoon trading on Wednesday, dipping below $86 a share, before rebounding slightly. Mr. Chanos, an investor who bet against Enron before it collapsed, was speaking at the Delivering Alpha conference in Manhattan, sponsored by CNBC and Institutional Investor.

“Caterpillar, while an amazing American success story down through the decades, is going to be facing a series of super commodity headwinds,” said Mr. Chanos, the founder of Kynikos Associates. “There’s probably long-term to medium-term disappointment for the bulls in this stock.”

The company is particularly exposed to commodity price swings in China, where it does a significant amount of business, Mr. Chanos said. Caterpillar is a chief supplier of equipment to the mining industry.

In addition, Mr. Chanos raised questions about Caterpillar’s accounting, focusing on its $7.6 billion acquisition of Bucyrus that closed in 2011. He suggested Caterpillar may have been too aggressive in how it accounted for the transaction.

“Whenever you see a company claim earnings synergies when buying another company and then write down its net assets to below zero, you have to say either that company never earned money or you’re being overly aggressive in your acquisition accounting,” Mr. Chanos said.

“You know that’s one of my favorites,” Mr. Chanos said. “Looking at companies that write down net tangible assets to zero or negative when they buy a company.”

A Caterpillar spokesman declined to comment on Mr. Chanos’s argument.