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I am an equity analyst and founding member of a triple digit million dollar fund. Oh, and I think technicals are nonsense. ...and no, the picture isn't me but a notable politician, and yes Mr. Samaras has been replaced! I am fully accountable for the recommendations I make.... On my Instablog I... More
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  • Maverick Begins To Cover AIXTRON Short Position 0 comments
    Mar 26, 2013 8:52 AM | about stocks: AIXG, AIXXF

    Aixtron bulls will be rather chuffed after the recent run. Solid performance capped with upgrades from Exane and Cannacord have no doubt put this stock back on investor's radar but for the real catalyst, you have to look no further than the shareholder register.

    The company operates in the LED market where it produces MOCVD machines which effectively pump out LED's, in which 1 machine can produce 80m of these things annually. The market in these machines is effectively a duopoly with rival company VEECO (VECO US) holding the edge as they managed to get their latest tech in the market six months earlier than Aixtron during the largest CapEx cycle for the LED industry to date.

    For those not too clued in, the company has been in the doldrums as the end of the Chinese subsidy ended Asian demand with the explosion in new tech (such as LED TVs) having slowed to reasonably growth levels. On top of this, the newer OLED technology effectively obsoletes these LED machines in the long run. Finally, if you think things couldn't get worse, the LED lighting market has not seen prices drop to the level required to spur the next wave of capacity improvement.

    As you would expect, the company has been loss making for quite some time and refuse to offer guidance although some analysts point to 2H13 as a year for a little bit of growth.

    I am sceptical as to whether or not LED's will definitely be the next source of lighting and I am therefore sceptical about the fundamental value of this firm. OLED's and Quantum Dots also operate in this space, while CFL already enjoys high efficiency with an extremely low pricing.

    What I do find interesting is the fact that Maverick Capital has built up a short position of 7m shares which, at normal levels, would take 6 months to flatten!

    With the recent price action moving the stock far off its lows, Maverick has closed out just over 100 thousand shares. If a 15% price action occurs concurrently with Maverick liquidating 1.4% of their short, I wonder what will happen when the company decide to get out completely.

    Fair enough, the share price action was due to broker upgrades and you could also say that Maverick believes the company is worth nothing, and then this short term volatility may be a small pain that the hedge fund will bear - but if something in the company changes fundamentally, this rally could be the start of something bigger.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: AIXG, AIXXF
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