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.
Gamco Investors
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.
Thanks for reading, and consider
subscribing to my posts for more Fool ideas on outperforming the market.
Requests for future articles may be submitted to fool@johnmacris.com.
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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