GT Advanced Technologies Inc (GTAT) has been a participant in the long-term secular growth trend of LED lighting and solar panels, and while the stock has been volatile, the company’s credit is solid and they are showing more cash on their balance sheet than debt, says Kenneth E. Lee, Managing Member of Bridgehampton Capital Management LLC.
“Our largest holding that we’ve published is GT Advanced Technologies (GTAT)…The company makes equipment that helps manufacture LED lighting and solar panels, and so their business has been in a long-term secular growth trend. But there has been some overcapacity in the industry recently, so the stock has gone out of favor. The reason we like this name for this type of trade is that it has been very volatile, but the credit looks solid to us. They have more cash on their balance sheet than they have debt, they have a business model in which they can scale their expenses very quickly,” Lee said.
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GTAT is an example of one of Lee’s firm’s hedge trades, where the firm owns the convertible bond. They seeing upside potential in the convertible should the cycle turn between now and its maturity in 2017, Lee says. He explains how his firm can benefit from this kind of trade.
“If the cycle were to turn between now and maturity in 2017, we have upside potential in the convertible…Essentially we stripped out the debt that is trading at effectively a very attractive yield, and we’re able to capture some of the volatility from that equity as well. That’s the kind of trade that we believe really fits nicely into a portfolio where you do have some long exposure, because in this particular trade we believe we can make money, depending on how it’s hedged, in up or down markets or with the stock going up or down, as long as we’re right about our credit analysis,” Lee said.
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