Kyle Bass loads up on tech stocks

The founder of Dallas-based Hayman Capital more than triples his investments in the sector.

By GuruFocus.com May 31, 2012 11:02AM

In the first quarter, Kyle Bass, the founder of Dallas-based Hayman Capital, increased the weight of tech stocks in his portfolio to 46% from 18% in the previous quarter. The increased weight continues his trend of making large bets on a certain sector each quarter. In the third quarter of 2011, 46% of his portfolio was in oil and gas, and in the fourth 55% was in financials. 

His top three new tech buys in the first quarter were Alcatel Lucent (ALU), MEMC Electronic Materials (WFR) and Tellabs (TLAB).


Alcatel Lucent

Bass bought 14,909,555 shares of Alcatel in the first quarter at an average price of $2.14, making it his largest holding at 23.6% of his portfolio. It is currently at $1.55 per share, near its 52-week low of $1.39 per share.

Alcatel builds next-generation networks, delivering integrated end-to-end voice and data communications solutions to established and new carriers, as well as enterprises and consumers worldwide.

Alcatel has a market cap of $3.9 billion. Its shares trade at a price-to-earnings ratio of 5.1 and price-to-sales ratio of 0.2.

Alcatel stock has plunged 71.3% over the last year. In the first quarter of 2012, Alcatel's revenue dropped 12.3% year-over-year to $4.2 billion. Revenue fell 18% in its Networks segment, 25% in its Optics division, 29.5% in its Wireless division and 8.7% in the Wirelins division. Revenue for its IP division increased 23.5% with particular strength in the APAC and Americas regions, which both grew more than 30% year-over-year. Service providers in these areas are in the process of transforming their networks to all-IP. Sales of its next-generations Networks also increased 23%.


MEMC Electronic Materials

Bass bought 3,588,952 shares of MEMC Electronic Materials at an average price of $4.35.

MEMC is a global producer of polysilicon and silicon wafers. It has a market cap of $368.1 million. Its shares are trading at around $1.64 with and price-to-sales ratio of 0.1.

MEMC Electronic Materials stock has declined 83% in the last year as it struggled with a challenging environment in both the semiconductor and solar markets. In May, Standard & Poor's downgraded the company's debt to junk status.

"The downgrade reflects our view that while the restructuring announced in December 2011 may deliver longer-run benefits to the company, cash flow will be negative in the first half of 2012 as the company works through the cash costs of shuttering its vulnerable solar materials business," S&P said in a statement. "There is uncertainty as to whether solar panel installations and sale prices will support a stabilization of cash flows in a solar market that remains very challenging."

The same day, MEMC acknowledged S&P's action. "We are disappointed with the rating change by S&P," commented Brian Wuebbels, MEMC's CFO in a statement, "but we are comfortable that our cash and liquidity position is sufficient to meet our current cash needs. The credit downgrade by S&P today will not adversely affect our current access to our existing non-recourse construction revolver for SunEdison construction activities."

MEMC's revenue increased from $1.2 billion in 2009 to $2.7 billion in 2011, but the company suffered a loss of $1.5 billion in the fourth quarter of 2011 due to restructuring, impairments and other charges. Net loss for the first quarter of 2012 improved to $92 billion. Revenue in its Solar Energy segment declined 37% year over year to $303.2 million as the company moved away from selling solar wafers.


Tellabs
Bass bought 2,191,238 shares of Tellabs at an average price of $4.

Tellabs helps the world's communications service providers build tomorrow's converged networks of voice, data and video. The company has a market cap of $1.3 billion. Its shares trade at around $3.57 with and price-to-sales ratio of 1. The dividend yield is 2.3%.

Tellab's stock price has declined 20% over the last year. In the first quarter of 2012, its first quarter 2012 revenue totaled $258 million, down from $322 in the year-ago quarter, which the company called "consistent with industry trends."

In the fourth quarter, the company's revenue had also declined to $317 from $410 million in the year-ago quarter. That quarter, it decided to restructure its business to focus on packet optical and mobile backhaul solutions, which caused it to have charges it estimated at $107 million in the first quarter of 2012. In the first quarter of 2012, the company reported a loss of $140 million including $113.7 million in pretax charges. The restructuring included reducing the company's workforce by about 530 people.

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