Corsair Capital Talks REIT Mega-Merger, Voya Financial (VOYA), Olin (OLN), More

Jay Petschek and Steven Major’s Corsair Capital Management is a New York-based hedge fund that was founded in 2002. The fund was up by 2.5% during the third quarter of 2016 and is up by 3.1% year-to-date. In its quarterly newsletter to investors, the fund wrote about the broader market theme of money moving from active funds to passive funds. They believe that this means non-index stocks are under-owned and undervalued, while the opposite is true for those in the major indices. The fund also wrote about the historically-low interest rates that have created a favorable environment for equities, particularly high dividend-yielding stocks. The fund’s outlook is for slow growth around the world, with interest rates remaining at below-historical-average rates. Corsair Capital expects to continue to own a US-centric portfolio, quite different than that of the S&P 500. In this article, we’ll explore some of the fund’s major additions and sales in the third quarter as well as their commentary on those moves.

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Quintiles IMS Holdings Inc. (NYSE:Q) is a biotechnology company engaged in the development and commercialization of pharmaceutical therapies. The company recently reported revenue and adjusted EPS above the consensus expectations and raised its full-year EPS guidance. The company’s strong second-quarter performance led to a good performance for its stock as well. Quintiles IMS Holdings Inc. (NYSE:Q) reported a strong book-to-bill ratio of 1.6x, which provides good visibility about its future revenue.

Corsair Capital Management believes that the company’s recent merger with IMS will help the organization going forward. The combined entity could earn up to $8 per share by 2020 and with a 20x multiple could provide significant upside to investors in the future as the current stock price is less than 50% of the fund’s target price. The number of hedge funds in our system holding this stock increased to 37 as of the end of June from 29 a quarter earlier. The value of their holdings also increased by a whopping 78% to $955 million by the end of the second quarter.

Voya Financial Inc.(NYSE:VOYA) is a financial services company which sells retirement services, annuities, investment management services, mutual funds, and insurance. Though the stock’s performance has been poor over the last 12 months, providing a negative return of 28%, its performance turned around in the second quarter after the company released good quarterly results.

Corsair Capital is positive about the stock since it believes that the company’s management will continue improving return on equity (ROE) towards its 2018 goals, exploring further earnings/capital opportunities, and returning excess capital/FCF to shareholders. The fund thinks that the stock is undervalued and has a target price of $40 per share on it, which would imply 33% upside from the current price. Voya Financial Inc.(NYSE:VOYA)’s management bought almost 4% of the company’s outstanding shares in Q2 and still has enough capital to buy a further 13% of its shares. The number of funds from within our system having a position in this stock also increased to 37 as of June 30, up by seven quarter-over-quarter. They accounted for 19.6% of the company’s float as of June 30.

We’ll check out three more stocks discussed by the fund on the next page.

Colony Capital Inc. (NYSE:CLNY) is a real estate and financial management company with a market value of $2.1 billion. The company is slated to merge with Northstar Asset Management and Northstar Realty Finance Corp (NYSE:NRF) to create a large, diversified REIT. The stock gained 19% during the second quarter but gave back some of the gains during the third quarter. Corsair Capital expects that the tri-party merger deal will go through and that the combined entity could see substantial gains from a multiple re-rating. Colony Capital Inc. (NYSE:CLNY) is currently trading near its 52-week-high price and has a dividend yield in excess of 8%. Out of the four analysts covering the stock, all of them have rated it as a ‘Buy’. 27 hedge funds that we track held Colony Capital shares worth $271 million as of June 30.

Olin Corporation (NYSE:OLN), which is a major manufacturer of industrial chemicals such as caustic soda and military ammunition, was a hedge fund favorite in Q2, as among the funds that we track, the value of their aggregate positions skyrocketed by 128% to reach $1.29 billion by June’s end. The company’s stock fell sharply after it pre-announced disappointing second-quarter results, due to consumer outages and raw material price pressures.

Despite this negative surprise, Corsair Capital Management remains positive on the stock, as it believes that the chlor-alkali market is on the upswing, with Olin Corporation (NYSE:OLN) set to benefit disproportionately given its large scale. The fund thinks that investors are too focused on short-term raw material pressures and are missing the larger picture. This provides a good risk/reward proposition, making the fund stay invested in the stock. The stock currently trades near the middle of its 52-week price range and has a market capitalization of $3.5 billion. While the stock has performed poorly in the last six months, it has done well in 2016 as a whole, giving a return of over 21% to stockholders. The average analyst recommendation is ‘Overweight’, with an average target price of $24.78 which implies upside of 20%.

Liberty Interactive Group (NASDAQ:QVCA) is a holding company which owns numerous top internet and media properties. The company also sells consumer products through live televised shopping and via its websites such as QVC.com. The company’s stock fell by 21% after it unexpectedly announced that it experienced mid/high single-digit sales declines in the last few weeks of the second quarter and into the third quarter. The company attributed the deceleration in sales to several factors such as an FDA warning regarding a popular hair care product and a challenging promotional retail environment during the spring/summer. However, Liberty CEO Greg Maffei reiterated later in the quarter that there has been no secular change in the business and that he has already seen the “green shoots” that point toward a recovery.

Corsair Capital Management remains bullish on the stock, as Liberty Interactive Group (NASDAQ:QVCA) has repurchased more than 20% of its outstanding shares at ~$26/share and following the second-quarter announcement, has indicated its intention to continue significant repurchases. The company has a market value of more than $14.1 billion and traded around its 52-week-low of $18 just a couple weeks ago. Shares have since gained about 15%. 75 hedge funds that we track held QVCA shares worth $3.81 billion on June 30, compared to 79 funds holding $4.26 billion in shares on March 31.

Disclosure: None