Mario Gabelli, a value investor who is founder, chairman, and CEO of Gamco Investors Inc. (NYSE:GBL) , recently spoke on CNBC during a Feb. 12 interview and revealed two of his favorite stock picks for 2013.
Gabelli, 70 years old, has enjoyed an illustrious career on Wall Street. In 1976, he formed a brokerage house under his own name and later opened his own series of mutual funds. Gamco is an acronym for Gabelli Asset Management Company.
While Gabelli is lesser known for his investment prowess than Warren Buffett, I consider them to be similar in nature on multiple levels:
- Both men are value investors with tremendous track records for success.
- Gabelli has a significant net worth estimated at $1 billion.
- Both Buffett and Gabelli are philanthropic. Born in Bronx, New York as the son of Italian immigrants, Gabelli told the Wall Street Journal in 2010 that Buffett motivated his charitable giving.
- Gabelli has acknowledged repeatedly he gets some of his best investment ideas from listening to Warren Buffett himself.
By now, you’re probably eager to learn more about Gabelli’s recent stock picks and how you can ride on his coattails. So which stocks did "Baby Warren Buffett" reveal during his recent interview on CNBC? Let’s take a closer look.
GenCorp Inc (NYSE:GY)
Gabelli indicates he is purchasing shares of GenCorp, a manufacturer of aerospace and defense products that is headquartered in Rancho Cordova, Calif. In addition to its aerospace and defense portfolio, GenCorp owns 12,200 acres of real estate in metropolitan Sacramento, Calif.
Since Gabelli's appearance on CNBC on Feb. 12, Gabelli has revealed in a Feb. 19 regulatory filing with the Securities and Exchange Commission that he has increased his stake in GenCorp to 15.6%.
On Feb. 11, GenCorp reported fourth quarter 2012 results led by the company’s funded backlog, which grew to a record $1,018 million as of Nov. 30, 2012, compared to $902 million during the prior year period. With the stock trading at multi-year highs, Gabelli believes more upside is around the corner when considering the company’s real estate assets and the earnings potential of a recent acquisition.
The $700 million GenCorp closed on its acquisition of Rocketdyne, a rocket design and production company also headquartered in California, earlier this year. Gabelli stated on CNBC that Rocketdyne’s manufacturing business has “short-term hiccups” but should earn $0.70 per share for GenCorp in 3-4 years.
Legg Mason, Inc. (NYSE:LM)
Having made a career in the asset management business himself, Gabelli states Legg Mason is undervalued. The Baltimore-headquartered global asset manager saw its shares reach a peak of $136 in February 2006 before falling to $40 leading up to the financial crisis in late 2008.
On Feb. 13, Legg Mason confirmed its interim CEO Joseph Sullivan as permanent president and CEO effective immediately. Sullivan also receives a seat on the LM Board of Directors. On Feb. 1, Sullivan stated “we are disappointed with our results” on the company’s third quarter earnings call, after reporting a larger-than-expected loss and weak revenue for the quarter.
Sandler O’Neil and BMO Capital have both downgraded the stock in recent weeks. Market participants have also speculated that Legg Mason’s weak performance could spur a private equity buyout. However, the Legg Mason chairman recently told the Wall Street Journal that the speculation is coming from “people that don’t have a very good understanding of how this company operates.”
Shares of Legg Mason have risen modestly since Gabelli reported his 5.13% stake in the company.
On a personal note, Legg Mason was the proud sponsor of one of my favorite tennis tournaments in the Washington, DC metro area from 2001-2011. Interestingly enough, Citigroup Inc (NYSE:C) is now the primary sponsor and the tournament has been renamed the Citi Open beginning in 2012.
Gabelli didn’t make specific comments regarding his company’s own stock during his brief CNBC interview, although plenty has been written about him and his company. For one, investors have criticized his outsized compensation package, which has contributed a significant portion to his own net worth.
Bears make note that only 40% of Gamco’s funds have outperformed their respective Lipper categories during 2012, and only 55% have outperformed over a three-year period.
I don’t feel that there is an investment opportunity in Gamco but wanted to make readers aware who look to identify a comparison to Warren Buffett’s Berkshire Hathaway Inc (NYSE:BRK.A).
Foolish bottom line
Mario Gabelli believes that GenCorp and Legg Mason are both set to double in the next year. However, all investors make mistakes, and there are others who are taking the opposite side of Gabelli’s trade. As of Jan. 31, GenCorp and Legg Mason had 19.31% and 7.88% short interest, respectively.
Personally, I wouldn’t want to bet against Gamco’s Legg Mason position, as no one understands the asset management business better than Mario Gabelli. And regarding GenCorp, it’s unquestionable that the company’s real estate is worth a considerable amount, and its core defense and aerospace business is improving. I think Gabelli is on the right side of both long-term trades.
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The article 'Baby Warren Buffett' Says These Stocks Will Double originally appeared on Fool.com and is written by John Macris.
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