Corsair Capital Betting Heavily on Consumer Discretionary Stocks

Corsair Capital Management L.P., managed by co-portfolio managers Jay Petschek and Steven Major, operates as a value-oriented, event-driven, long/short equity investment firm whose flagship fund was launched in January 1991. The hedge fund vehicle predominantly focuses on small- to mid-cap companies undergoing strategic or structural changes.

The New York-based asset manager has outperformed U.S. stock market benchmarks over the course of its existence, as Corsair Capital has generated a compounded net annual return of 12.6% since inception through the end of June versus the 9.8% return generated by the S&P 500 Index over the same time span. The investment firm delivered a net-of-fees return of 1.3% for the second quarter of 2016, bringing the firm’s return for the first two quarters of the year into positive territory, at 0.6%. Corsair Capital Management recently submitted its 13F filing for the June quarter with the SEC, which showed that consumer discretionary-related equity investments accounted for nearly one-third of the value of the fund’s $656.37 million portfolio. Hence, Insider Monkey decided to compile a list of the five consumer discretionary stocks most favored by the value-oriented firm. This article will also mention Corsair Capital’s comments on some  of its positions, as discussed in a recent letter to investors for the second quarter.

At Insider Monkey, we track around 765 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).

Aramark (NYSE:ARMK)

– Shares Owned by Corsair Capital Management (as of June 30): 670,992
– Value of Corsair Capital Management’s Holding (as of June 30): $22.43 Million

Corsair Capital trimmed its position in Aramark (NYSE:ARMK) by 15% during the second quarter of 2016, to 670,992 shares. The trimmed position was worth $22.43 million on June 30 and accounted for 3.4% of the value of the investment firm’s equity portfolio. The provider of food, facilities and uniform services has seen the value of its stock advance by 10% since the beginning of the year. Aramark reported sales of $3.57 billion for the three-month period ended April 1, slightly down from $3.59 billion posted for the same period of the previous year. During the second quarter of the company’s 2016 fiscal year ended April 1, it completed the acquisition of Avoca Handweavers Limited, an Irish specialty food and merchandise retailing company. The Irish company was purchased for a cash consideration of roughly $57.9 million. Lee Ainslie’s Maverick Capital was the owner of 10.88 million shares of Aramark (NYSE:ARMK) at the end of the first quarter.

Liberty Interactive Group (NASDAQ:QVCA)

– Shares Owned by Corsair Capital Management (as of June 30): 1.05 Million
– Value of Corsair Capital Management’s Holding (as of June 30): $26.72 Million

The New York-based equity investment firm upped its stake in Liberty Interactive Group (NASDAQ:QVCA) by 15% during the three-month period ended June 30, finishing the second quarter with 1.05 million shares valued at $26.72 million. The parent company of home shopping network QVC has lost 21% of its market value thus far in 2016, as the company’s management recently said that their “near-term perspective is more cautious” amid a deceleration in demand in the U.S. late in the second quarter. Liberty Interactive Group’s QVC Group revenue for the second quarter grew by 21% year-over-year to $2.42 billion, mainly reflecting the acquisition of online retailer zulily in October 2015. In late-July, the company completed its previously announced spin-off of CommerceHub, a leading distributed commerce network for retailers and brands. D.E. Shaw & Co. L.P., founded by David E. Shaw, had 7.05 million shares of Liberty Interactive Group (NASDAQ:QVCA) among its holdings at the end of March.

The next page of this article will reveal three other consumer discretionary stocks favored by Corsair Capital Management.

Ryman Hospitality Properties Inc. (REIT) (NYSE:RHP)

– Shares Owned by Corsair Capital Management (as of June 30): 573,374
– Value of Corsair Capital Management’s Holding (as of June 30): $29.04 Million

The value-oriented asset manager reduced its Ryman Hospitality Properties Inc. (REIT) (NYSE:RHP)’s holding by 14% during the April-to-June period, to 573,374 shares. The reshuffled position was worth $29.04 million at the end of the second quarter, constituting 4.4% of the value of the investment firm’s portfolio. The shares of the real estate investment trust (REIT) which specializes in destination hotel assets in urban and resort markets are up by 7% this year. RHP’s portfolio of owned assets includes a network of four upscale resorts managed by Marriott International Inc. (NASDAQ:MAR) under the Gaylord Hotels brands. As most hotel-focused REITs are somewhat dependent on corporate travel, the recent announcement that home-sharing company Airbnb will integrate with three corporate travel platforms might have some investors spooked about the potential implications for RHP. However, analysts believe that this partnership will not have a meaningful impact on RHP due to its in-house convention portfolio. Bernard Selz’s Selz Capital reported ownership of 257,400 shares of Ryman Hospitality Properties Inc. (REIT) (NYSE:RHP) through the current round of 13F filings.

IAC/InterActiveCorp (NASDAQ:IAC)

– Shares Owned by Corsair Capital Management (as of June 30): 544,793
– Value of Corsair Capital Management’s Holding (as of June 30): $30.67 Million

Corsair Capital had 544,793 shares of IAC/InterActiveCorp (NASDAQ:IAC) in its portfolio on June 30, a mere 9,337 shares more than it did on March 31. The slightly increased position was valued at $30.67 million at the end of June. The leading media and internet company operates a portfolio of well-known brands and products such as HomeAdvisor, Vimeo, About.com, Dictionary.com, The Daily Beast, and Investopedia, as well as popular dating app Tinder. In the aforementioned quarterly letter to investors, Corsair Capital said that the company’s share buybacks in the first quarter amounting to 6% of its outstanding shares, alongside a second quarter letter to shareholders from IAC’s CEO and the appointment of a new CFO, “was a significant inflection point for the company.” IAC plans to reach HomeAdvisor-related revenue of more than $1 billion in 2020, compared to a mere $355 million in 2015. IAC shares are 19% in the green year-to-date. Christian Leone’s Luxor Capital Group owned 3.03 million shares of IAC/InterActiveCorp (NASDAQ:IAC) at the end of the first quarter.

Diamond Resorts International Inc. (NYSE:DRII)

– Shares Owned by Corsair Capital Management (as of June 30): 1.20 Million
– Value of Corsair Capital Management’s Holding (as of June 30): $36.02 Million

The long/short equity asset manager run by Jay Petschek and Steven Major increased its position in Diamond Resorts International Inc. (NYSE:DRII) by 42% during the second quarter, to 1.20 million shares. This was the second-largest position in Corsair Capital’s equity portfolio at the end of June, accounting for 5.5% of the portfolio’s value. The New York-based asset manager “made DRII a core position after management announced [in late February] it was pursuing strategic alternatives and we continued to add throughout Q2 as DRII continued to execute.” In late-June, the operator of timeshare properties agreed to be bought by private equity firm Apollo Global Management LLC for approximately $2.2 billion. As stated in the second quarter letter to investors, Corsair Capital believed the timeshare resort company “would be an ideal takeout candidate for either a strategic buyer or PE buyer,” mainly owing to “its low financial leverage and limited capex requirements.” Robert B. Gillam’s McKinley Capital Management owns 4,491 shares of Diamond Resorts International Inc. (NYSE:DRII) as of the end of the second quarter.

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