MannKind Corporation (NASDAQ:MNKD) shares tumbled 46% between July 1 and September 30. GT Advanced Technologies Inc (OTCMKTS:GTATQ) had a market value of $3 billion in one month, and almost wiped out the next. Jason Karp’s hedge fund Tourbillon Capital Partners made a killing shorting MannKind and GT Advanced Technologies during the September quarter. Tourbillion said shorting these two stocks contributed the most to its quarterly profits.
MannKind stock would fall to $1
MannKind has entered a marketing agreement with Sanofi SA (ADR) (NYSE:SNY) (EPA:SAN) to sell its insulin inhaler Afrezza. The treatment is expected to be launched early next year. But Tourbillion remains bearish on the stock. Karp expects MannKind shares to decline from about $6 today to $1. The hedge fund, which manages about $1.3 billion, returned a staggering 71% during the third quarter, according to Bloomberg.
Today, Apple is the largest public company in the world, and the group’s iPhones can be found in stores all over the globe, but not long ago the company was a baby when the Apple IPO was filed in the 1970s. Not only is Apple the world’s most valuable company, but it’s also arguable that Read More
GT Advanced Technologies filed for Chapter 11 bankruptcy on Oct.06 without specifying why. Investors were expecting its scratch-proof sapphire display to be used in Apple Inc. (NASDAQ:AAPL)’s new products. The Cupertino-based tech giant imposes onerous contract terms on its component suppliers. Tourbillion said in its letter to investors that its main fund has gained 8.7% this year through September. The hedge fund returned 21% in 2013.
Lakewood Capital also benefits shorting GT Advanced Technologies
Lakewood Capital Management also reaped benefits of the crumbling fortunes of GT Advanced Technologies. The fund posted a net loss of 1.10% in the quarter ending September 30, according to an investor letter reviewed by ValueWalk. But its short positions performed better than its long positions. Short equity positions returned +7% during the quarter, compared to a 4% decline it suffered from long equity positions. However, the fund’s greater exposure to long positions resulted into a small net loss.
Lakewood Capital said in its letter to investors that the tech component industry has seen a recurring theme over the past few years. These companies command sky-high valuations as early entrants into a fast-growing industry. But their stocks meet a grave fate later due to “customer concentration issues” or fierce competition. GT Advanced Technologies also witnessed a similar outcome.
Specifically, the fund stated in a discussion of its INVN short (which ValueWalk will cover soon) that:
We often find that the anticipation of something grand often proves to be more exciting than the economic reality, and we believe that this is likely the case with InvenSense’s now-confirmed placement in the iPhone. While we do not doubt that this business will help the company grow, selling commodity components to companies like Apple is a tough way to make money. Investors would be well-served to study the experience of GT Advanced Technologies, a company I referenced above that the fund has been short in recent months. GT’s stock soared on investor excitement that the company was awarded a contract to supply sapphire to Apple. The company was a $3 billion market capitalization darling one month, and literally gone the next, as the company crumbled under onerous contract terms imposed by Apple, leading to a Chapter 11 filing. Be careful what you wish for.