Kynikos Associates founder Jim Chanos warns investors about the possible drop in stock value of what he called “virus stocks,” which are now catapulted into unprecedented gains by the coronavirus pandemic.
Chanos said that stocks that are very high right now because of the sudden increase in demand for their services as the world grapple with border lockdown, community quarantines, and increase sanitation, are more likely to plummet down once the pandemic is over.
“One area I would warn people about, for example, is the virus stocks,” Chanos said on Thursday on CNBC’s Halftime Report. They are “doing well right now in this enforced lockdown. A lot of these companies are really not structurally growth stocks that are trading at 30, 40, 50 times earnings because they are going to do well in the first and second quarters of 2020.”
For the short sell, companies like Zoom Video, Teladoc, and Clorox are only getting lifts for their stocks because of the coronavirus outbreak. Shares of Zoom Video and Teladoc soared 85% and 94% this year respectively on a surge in demand, while Clorox gained more than 15%.
“Of course, when the virus subsides, and we all know it will, those companies will probably begin not to look as attractive going forward,” Chanos said. “I would tell your viewers to be very, very careful about just piling into things that are doing well because people are inside and will stay inside for the next three, four, five weeks.”
Chanos urges investors to “do your research” and compare the figures for the aforementioned company to its 2019 performance. “Look at the business and look at 2019. Take an educated guess, do your research, and do your work and what you think this looks like in 2021. If it’s still a cheap stock then, then it might be an attractive investment on the long side,” Chanos said.
“You have to write off 2020, and I think the market is and will ultimately,” he added.