Corsair Capital Bullish on Innophos (IPHS): Q3 Letter ~ market folly

Tuesday, October 26, 2010

Corsair Capital Bullish on Innophos (IPHS): Q3 Letter

Jay Petschek and Steven Major's Corsair Capital Management is out with their third quarter investor letter and they are up 6.9% net year-to-date. Since inception in 1991, Corsair has seen an impressive 15.1% annualized return so let's dive into their latest market commentary.

Like many investors we've highlighted on the site, Corsair points to equities as more attractive than bonds in the current environment by writing, "many stocks are currently trading at 11-12 times next year's expected after-tax earnings. This equates to approximately 8-9 times pre-tax earnings or (calculated inversely) an earnings yield of 11-12% which is looking more and more attractive in a 3.8% 30-year Treasury bond world."

Petschek and Major also note that the Fed's low interest rate environment has forced investors (and even savers) to chase yield and take on more risk, a potential reason for the market's recent rally. In terms of Corsair's specific portfolio, their letter features an in-depth writeup on their investment in Innophos (IPHS) which they believe will see P/E multiple expansion as it recently restructured debt and cut interest expense in half.

Opining that mergers and acquisitions (M&A) activity will pick-up, the hedge fund manager points to their stake in Globe Specialty Metals (GSM) as a position poised to benefit from this trend. They feel higher silicon metal prices are to come as the industry has high barriers to entry and tight supply.

In their first quarter letter, Corsair Capital Management previously laid out their bullish case for Expedia (EXPE) and this time around they continue to hold it as their TripAdvisor service continues to be a high quality asset. Additionally, Corsair again re-visited their investment in LyondellBasel (LYB), a post reorganization equity. The stock recently listed on the NYSE under the ticker LYB and they expect institutional investors to finally 'discover' the stock again, leading to inflows of new investment. In the past, we've also highlighted how Jamie Dinan's York Capital had been fond of LyondellBasel.

Embedded below is Corsair Capital's Q3 letter to investors:

You can download a .pdf copy here.

To read Corsair's previous letter, we've also posted their bullish case for Aon (AON) as well. For more manager commentary, scroll through the collection of hedge fund investor letters we've posted recently.

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