In this article, we will take a detailed look at the11 Undervalued Stocks Picked by Billionaire Gabelli.For a quick overview of such stocks, read our article5 Undervalued Stocks Picked by Billionaire Gabelli.
Billionaire Mario Gabelli in 1976 founded Gabelli & Co. as an institutional brokerage house. Over the years the firm went through an evolution and today it's one of the biggest investment firms operating as GAMCO Investors. The 81-year-old billionaire has a net worth of about $1.6 billion according to Forbes. In November 2023, Gabelli, while talking to CNBC, said that the US consumer is an incredibly strong position since the overall net worth of consumers in the country has gone up significantly over the past few years. However, Gabelli said income disparity in the US is high. Gabelli named several spending acts by the US government and said while the Fed is trying to reduce the aggregate demand, the amount of money the US government is putting in the system is having an opposite effect. Gabelli then went on to talk about the "short-termism" of the market and said while uncertainties remain and we cannot predict events like the COVID-19 pandemic and the Russian invasion of Ukraine, one can still make money investing in the stock market.
"You can make a lot of money in the market.. by doing simple things like buying specific stocks."
But how does Gabelli find "specific stocks" to invest in? GAMCO in a report highlighted that instead of always focusing on short-term earnings cycles and news, it focuses on true value of companies and positions itself for long-term earnings trends.
"We want to know everything and anything that will add to, or detract from, our valuation estimates. This method of analysis involves looking at businesses as a function of their assets and earnings power. We examine businesses as if we were owners of those businesses, and we believe that we can do that in a rational way by looking at industries on a global basis. Our investment professionals visit with hundreds of companies each year. Our work is proprietary, bottom up, and involves the full utilization of public resources. We calculate the Private Market Value (PMV) estimate of the business, which is what an informed strategic buyer would pay for a business in its entirety in a private transaction. Effectively, it is the intrinsic value plus a strategic premium. Finally, we look for a catalyst: something happening in the company’s industry or indigenous to the company itself that will help realize returns. A company’s PMV is not constant, and changes as a function of many variables. The objective is to identify large differences between our estimate of PMV and the stock market price. We then identify the catalyst to realize a return with minimal influence from the overall direction of the stock market. It is our belief that we can earn superior risk adjusted returns following this event-driven approach."
In another interview in August last year, Gabelli said that markets go up and down but what's important is that we want to invest in good companies with strong management and valuations. Gabelli said that there are opportunities beyond just the Magnificent Seven.
Methodology
For this article we scanned GAMCO's Q3'2023 portfolio and picked 11 stocks with PE ratios less than 20. We ranked these stocks in ascending order of GAMCO's stakes in terms of dollar value. Gabelli is a fan of undervalued companies and usually focuses on under-the-radar names, unlike many other hedge funds who have billions poured in mega-cap tech stocks like Apple Inc (NASDAQ:AAPL), Amazon.com Inc (NASDAQ:AMZN) and NVIDIA Corp (NASDAQ:NVDA).
11.Deere & Co (NYSE:DE)
Number of Hedge Fund Investors: 55
GAMCO's Stake: $69M
Deere & Co (NYSE:DE) ranks 11th in our list of the undervalued stocks to buy according to billionaire Mario Gabelli. The stock has a PE ratio of 11.16. Gabelli's hedge fund owns a $69 million stake in the agricultural machinery company.
In December 2023, Deere & Co (NYSE:DE) increased its dividend by 8.9%. During the same month Stifel published its Macro and Portfolio report in which it mentioned some cyclical value stocks that are buy-rated by its analysts. Deere & Co (NYSE:DE) made it to the list.
As of the end of the third quarter of 2023, 55 hedge funds tracked by Insider Monkey had stakes in Deere & Co (NYSE:DE).
9. Penske Automotive Group Inc. (NYSE:PAG)
Number of Hedge Fund Investors: 18
GAMCO's Stake: $73M
Automotive dealership company Penske Automotive Group Inc. (NYSE:PAG) ranks ninth in our list of the most undervalued stocks to buy according to billionaire Mario Gabelli.
The stock has a PE ratio of 8.86.
As of the end of the third quarter of 2023, 18 hedge funds out of the 910 funds tracked by Insider Monkey had stakes inPenske Automotive Group Inc. (NYSE:PAG).
In October Penske Automotive Group Inc. (NYSE:PAG)posted third quarter results. GAAP EPS in the period came in at $3.92, missing estimates by $0.02. Revenue in the period jumped 7.7% year over year to $7.45 billion, surpassing estimates by $200 million.
8.Bank of New York Mellon Corp (NYSE:BK)
Number of Hedge Fund Investors: 51
GAMCO's Stake: $77M
Bank of New York Mellon Corp (NYSE:BK)is gaining ground after crushing fourth quarter of 2024 earnings estimates. The bank earned $1.28 per share, beating estimates by $0.16. Revenue in the quarter jumped 9.9% year over year to $4.31 billion, surpassing estimates by $10 million.
As of the end of the third quarter of 2023, 51 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Bank of New York Mellon Corp (NYSE:BK). The biggest hedge fund stakeholder of Bank of New York Mellon Corp (NYSE:BK)during this period was Jean-Marie Eveillard's First Eagle Investment Management which owns a $693 million stake in Bank of New York Mellon Corp (NYSE:BK).
7.Genuine Parts Co (NYSE:GPC)
Number of Hedge Fund Investors: 35
GAMCO's Stake: $78M
Billionaire Mario Gabelli's hedge fund Genuine Parts Co (NYSE:GPC)has a $78 million stake in auto parts company Genuine Parts Co (NYSE:GPC).
As of the end of the third quarter of 2023, 34 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Genuine Parts Co (NYSE:GPC). The biggest hedge fund stakeholder of Genuine Parts Co (NYSE:GPC)was Israel Englander's Millennium Management which owns a $99.8 million stake in Genuine Parts Co (NYSE:GPC).
Like Genuine Parts, hedge funds also like Apple Inc (NASDAQ:AAPL), Amazon.com Inc (NASDAQ:AMZN) and NVIDIA Corp (NASDAQ:NVDA).
7. Enpro Inc (NYSE:NPO)
Number of Hedge Fund Investors: 15
GAMCO's Stake: $96M
With a PE Ratio of under 20 an about 22% jump in stock price over the past 12 months, industrial technology company Enpro Inc (NYSE:NPO) ranks seventh in our list of the top value stocks picked by billionaire Mario Gabelli. In October, Enpro Inc (NYSE:NPO) posted third quarter results. Adjusted EPS in the period came in at $1.58, meeting estimates. Revenue in the period fell 10.5% year over year to $250.7 million, missing estimates by $21.97 million.
Gabelli's hedge fund owns a $96 million stake in Enpro Inc (NYSE:NPO)as of the end of the September quarter.
6.American Express Company (NYSE:AXP)
Number of Hedge Fund Investors: 74
GAMCO's Stake: $97M
American Express Company (NYSE:AXP) ranks sixth in our list of the top undervalued stocks picked by billionaire Mario Gabelli as the payments giant has a PE ratio of 17.08. Deutsche Bank Research analyst Mark DeVries recently started covering American Express Company (NYSE:AXP) along with some other stocks, citing valuation. The analyst said the stock is "priced for greater economic weakness that seems likely."
As of the end of the third quarter of 2023, 74 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in American Express Company (NYSE:AXP). The biggest hedge fund stakeholder of American Express Company (NYSE:AXP)during this period was Warren Buffett's Berkshire Hathaway which owns a $23 billion stake in American Express Company (NYSE:AXP).
In addition to AXP, hedge funds also like Apple Inc (NASDAQ:AAPL), Amazon.com Inc (NASDAQ:AMZN) and NVIDIA Corp (NASDAQ:NVDA).
In its fourth quarter 2023 investor letter, Oakmark Select Fund stated the following regarding American Express Company (NYSE:AXP):
“American Express Company (NYSE:AXP) is one of the largest credit card issuers and payment networks in the world. We believe the company’s closed-loop network, brand equity and scale represent durable competitive advantages. Unlike most card issuers that process credit card transactions over third-party networks, American Express processes transactions over its own network. This allows American Express to earn greater economics than peers on each card transaction. The company retains part of this advantage in the form of higher profitability and reinvests the rest in enhanced customer rewards and service. Over time, these investments have helped American Express build its brand and attract more lucrative, high-spending card customers. We expect this business model and customer-centric approach will continue to drive industry-leading growth for years to come. Concerns over the near-term economic outlook allowed us to purchase shares of American Express at a 13x P/E on next year’s consensus earnings estimate. We think that is an attractive valuation for a company with this combination of business quality and growth.
Click to continue reading and see 5Undervalued Stocks Picked by Billionaire Gabelli.
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Disclosure.None.11Undervalued Stocks Picked by Billionaire Gabelliwas initially published on Insider Monkey.
I am an investment enthusiast with a deep understanding of stock analysis and portfolio management. My expertise stems from years of actively engaging in financial markets, closely following renowned investors, and thoroughly researching investment strategies. I have a knack for identifying undervalued stocks and a keen interest in the methodologies employed by successful investors like Mario Gabelli.
Now, let's delve into the concepts mentioned in the article on "11 Undervalued Stocks Picked by Billionaire Gabelli":
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Gabelli & Co. and GAMCO Investors:
- Mario Gabelli founded Gabelli & Co. in 1976, which later evolved into GAMCO Investors, one of the largest investment firms.
- The firm focuses on long-term earnings trends rather than short-term cycles and news.
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Gabelli's Investment Philosophy:
- Gabelli emphasizes understanding the true value of companies by evaluating their assets and earnings power.
- They adopt a bottom-up, proprietary approach, looking at businesses as if they were owners.
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Private Market Value (PMV):
- GAMCO calculates the Private Market Value, which represents what an informed strategic buyer would pay for a business in a private transaction.
- PMV includes intrinsic value plus a strategic premium.
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Catalyst-Driven Approach:
- GAMCO seeks catalysts, events within a company's industry or specific to the company, that can drive returns.
- The goal is to identify large differences between PMV and the stock market price.
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Long-Term Investment Strategy:
- Gabelli emphasizes investing in good companies with strong management and valuations.
- The focus is on opportunities beyond popular mega-cap tech stocks.
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Methodology for Stock Selection in the Article:
- The article outlines the methodology for selecting undervalued stocks from GAMCO's Q3'2023 portfolio.
- Stocks with PE ratios less than 20 were considered, ranked by GAMCO's stakes in ascending order of dollar value.
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Highlighted Undervalued Stocks:
- The article discusses specific undervalued stocks selected using the mentioned methodology.
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Examples of Undervalued Stocks:
- Examples include Deere & Co (DE), Penske Automotive Group Inc. (PAG), Bank of New York Mellon Corp (BK), Genuine Parts Co (GPC), Enpro Inc (NPO), and American Express Company (AXP).
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Hedge Fund Investors and Stakes:
- Information is provided on the number of hedge fund investors and GAMCO's stake in each highlighted stock.
- Examples include the number of hedge fund investors for Deere & Co (55) and GAMCO's stake ($69M).
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Financial Performance and Metrics:
- The article briefly mentions financial performance metrics such as PE ratios, dividends, and quarterly earnings results for some of the highlighted stocks.
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Market Insights and Commentary:
- Gabelli's insights on the US consumer, income disparity, government spending, and market short-termism are discussed.
- Comments on market fluctuations and the importance of investing in good companies are highlighted.
This comprehensive analysis provides valuable insights into Gabelli's investment philosophy, stock selection methodology, and the specific undervalued stocks identified in the Q3'2023 portfolio.
