Eleven years after its inception, Corsair Capital Management has grown into a half-a-billion dollar hedge fund, best known for sniffing out value-driven investments in public equities. Managed by Jay Petschek and Steven Major, the fund keeps a well-diversified portfolio of names that the average investor may not see on his radar amongst the tech and financial giants. Deep-value and distressed plays are the bread and butter of Corsair, and they keep a close watch on companies in the midst of restructuring, hoping for big growth and big payouts that you can ride as well. Let’s take a look at Corsair’s largest positions as of last September.
Digitalglobe, Inc. (NYSE:DGI) tops the hedge fund’s list of holdings with over $25 million committed. Providing commercial-grade earth imaging products, DGI was a huge winner last year for Corsair, racking up a 68% change in stock price in the last twelve months, compared to a paltry 12% for the S&P500. Forward P/E is trading at a sky-high 23, and with negative earnings per share, we think the upward momentum might be exhausted and a correction is imminent. DGI may be too risky to jump in now, and there are better value plays to be had. Christopher Pucillo of Solus Alternative Asset Management saw a good bump in his performance last year due to the stock, carrying almost 13% of his portfolio in Digitalglobe. (See what the rest of Solus’ portfolio looks like here.)
Next on Corsair’s list is Innophos Holdings, Inc. (NASDAQ:IPHS), a producer of mineral-based ingredients and phosphates used in food, pharmaceutical, and industrial end markets. Nowhere near the stand-out winner that DGI was for the fund in 2012, Corsair rode through the stock’s summer highs and experienced a 13% drop in performance in the third quarter of last year. With trailing and forward P/Es at 14 and 13, respectively, Innophos valuations are more grounded than DGI, and sell-side analysts still expect growth for this year with a price target near $58. (See which billionaire fund manager has a position in IPHS as well.)
What else tops Corsair’s list?
Interdigital, Inc. (NASDAQ: IDCC) occupies another 5% of Corsair’s capital, snapping up $26mm in investment. Amy Minella of Cardinal Capital has half the percentage of her fund in IDCC, but it amounts to $10mm more than Corsair’s position. Interdigital is a billion-dollar player in the wireless technologies and digital cellular space and provides ways to monetize mobile Internet and data usage. Interdigital reported blowout earnings last October for the quarter ending in September, jumping from $0.22 the previous quarter up to $5.56. This increase was primarily due to a $375mm patent sale to software-giant Intel, and the earnings estimates for this past quarter are much more in line with previous reports of 2012. We’d like to see growth estimates not be skewed by this transaction and thus would wait to build a long position until more consistent growth trends are confirmed. (Read about what other fund managers are doing with their IDCC positions here.)
Fourth on Corsair’s list is Globe Specialty Metals, Inc. (NASDAQ:GSM). GSM had the weakest gain of Corsair’s winners in the past twelve months, only registering a 1.9% jump in stock price. Quarterly revenue growth was positive respective to the same quarter a year prior, but lackluster EPS and an extremely high trailing P/E of 41 do not make this the most attractive play for us. Analysts primarily downgraded GSM in 2012, with the most recent downgrade in December accompanied by a price target drop of $20 to $15. Not the most promising play going into 2013.
Aon Plc (NYSE:AON) rounds out Corsairs top five largest positions, and embodies their investing mantra of finding value plays in turnarounds. After a management overhaul in 2005, Aon saw light at the end of tunnel and has become a promising player in the insurance and consulting businesses. This positive movement spread into 2012, garnering a 20.3% growth in stock price in 2012. Forward P/E is more conservative than Trailing P/E, dropping from 12 to 20, indicating a possible growth in earnings for 2013. While growth in revenue and earnings this past quarter versus a year ago were nothing to write home about, earnings estimates are more hopeful than last year, with Goldman Sachs agreeing and issuing a Buy rating after AON’s last report. Russell Hawkins of Hawkins Capital believes the hype and has built a near-$100mm position, firmly planting AON as one of his top positions as well. (See what else Hawkins is holding in his fund).
Disclosure: I do not own shares of any stocks mentioned in this article.
