In this article, we discuss 10 blue-chip stocks to buy according to Mario Gabelli.
Mario Gabelli is the founder of GAMCO Investors and a billionaire investor. Gabelli is an advocate of the value investing philosophy, crediting Graham and Dodd as important influences on his outlook. He is known for developing the Private Market Value approach, which is the price that a strategic buyer would pay in the private market for a firm, or the inherent value plus a premium.
The majority of the fund’s investments are in ordinary and preferred equities. The fund aims for a 10% actual rate of return while selecting stocks. It focuses on businesses that appear to be undervalued in comparison to their private market worth (“PMV”). At least 80% of the fund’s assets are typically invested in equities that are traded on a recognized securities exchange or comparable market. It can invest up to 25% of its total capital in securities issued by non-US companies.
According to Gamco Investors Annual Report 2020, the firm’s traditional value-oriented Institutional and PWM composite has recorded a compound yearly gross return of 15.6% and 14.7% net of fees since it began managing Institutional and PWM clients in 1977. These returns can be compared to the S&P 500’s compound annual return of 11.8% through December 31, 2019.
In an interview with the ‘Squawk Box’ on CNBC in April, Gabelli expressed his views on the overall economic environment and the Federal Reserve’s policies. Gabelli shared that companies are concerned about supply-chain-related issues, which is why they are increasing their inventories. While nominal earnings are unlikely to become an issue for firms, it’s the multiple of earnings that is a point of concern. This is where the Fed’s policies come into play, as the multiple of earnings is a direct function of the rate at which the interest rate is increased. According to Gabelli, over the last 40 years, the impact of the interest rate on multiples has shifted from being a tailwind to a headwind. The major change is what the market is struggling to adjust to.
Some of the popular blue-chip stocks in Gabelli’s portfolio as of Q1 2022 include Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG), and JPMorgan Chase & Co. (NYSE:JPM).
Our Methodology
In this article, we will take a look at the 10 blue-chip stocks to buy according to Mario Gabelli. These stocks have been picked from the first quarter 2022 portfolio of GAMCO Investors.
Blue Chip Stocks to Buy According to Mario Gabelli
10. American Express Company (NYSE:AXP)
Number of Hedge Fund Holders: 69
Mario Gabelli’s Stake Value: $162,782,000
Percentage of Gabelli’s Portfolio: 1.45%
Stock Price as of June 15: $154.42
American Express Company (NYSE:AXP) is a New York-based provider of card payment services. The stock has been a member of the prestigious Dow Jones Industrial Average Index since August 1982. Furthermore, Warren Buffett’s Berkshire Hathaway Inc is the biggest shareholder of American Express Company (NYSE:AXP), with a stake of 7.79% as of March 31. The Oracle of Omaha is known as a veteran value investor and prefers to invest in blue-chip stocks.
On June 6, Kyle Sanders at Edward Jones upgraded American Express Company (NYSE:AXP) from a Hold to a Buy rating without a specific target price. The analyst thinks that financial services will be less impacted by inflationary pressure due to its loyal and affluent members and will not face a decline in spending patterns. Sanders further added that American Express Company (NYSE:AXP) had been actively working to attract younger customers and has made its product offerings stronger. Both these factors have led to positive new account growth.
ClearBridge Investments mentioned American Express Company (NYSE:AXP) in its Q2 2021 Investor Letter. Here’s what the asset management firm said about the company:
“In financials, American Express has done an excellent job demonstrating the resiliency of its franchise in the midst of a global pandemic that drove a 60% decline in its core travel and entertainment business. The company’s spend-centric model has been helped by fiscal stimulus ensuring a flush consumer, while management continues to execute well by adding millions of new consumer and small and medium business accounts, which should benefit the franchise over the medium to long term. We remain optimistic regarding the company’s prospects as travel and entertainment activity rebounds, adding to our position in the quarter.”
Overall, 69 hedge funds held a stake in American Express Company (NYSE:AXP) out of the 912 funds tracked by Insider Monkey at the end of Q1 2022.
9. Deere & Company (NYSE:DE)
Number of Hedge Fund Holders: 66
Mario Gabelli’s Stake Value: $93,036,000
Percentage of Gabelli’s Portfolio: 0.83%
Stock Price as of June 15: $335.23
Deere & Company (NYSE:DE) is a Moline, Illinois-based company involved in the manufacturing of agricultural machinery, diesel engines, forestry machinery, heavy equipment, and lawn care equipment.
Matt Elkott at Cowen initiated coverage on Deere & Company (NYSE:DE) with a Neutral rating and a target price of $396 in a note issued to investors on June 9. The analyst highlighted that the company’s exposure in the precision agriculture segment is a game-changer for the firm. However, the anticipation of an economic slowdown and recession has caused the research firm to assign a Neutral rating to the stock. The execution of precision agriculture in growing corn across the US could yield a recurring revenue opportunity of $2.8 billion for Deere & Company (NYSE:DE).
Meanwhile, the US soybean market provides an opportunity to generate $1 billion in recurring revenue. This would make it possible for Deere & Company (NYSE:DE) to reach its target of 10% recurring revenue by 2030. Elkott anticipates the company to reach an EPS of $38 by 2026.
Deere & Company (NYSE:DE) was mentioned by ClearBridge Investments in its Q1 2022 Investor Letter. Here’s what the asset management firm said about the company:
“Industrials holding Deere (NYSE:DE) was also a strong contributor to performance during the quarter. Through its unmatched 5,000 dealer network across 160 countries, Deere is a major global player in agricultural, construction and forestry equipment, with a particularly dominant position in U.S. agriculture. Deere’s moat around its core equipment capabilities, coupled with years of substantial investments in technology and innovation, further extends its competitive advantage into precision agriculture, which allows for higher farm yields with lower use of fertilizers, pesticides and water, thereby improving farmers’ bottom lines while reducing their environmental footprint. In addition to drought conditions in Latin America, the war between Russia and Ukraine, two major exporters of corn and wheat, is further disrupting the global agricultural commodities market and pushing prices even higher. This should mean higher farmer revenues and greater demand for Deere’s equipment, which is further supported by some of the lowest levels of inventory of new and used equipment on record.”
As of Q1 2022, 66 funds held a stake in Deere & Company (NYSE:DE).
8. Honeywell International Inc. (NASDAQ:HON)
Number of Hedge Fund Holders: 50
Mario Gabelli’s Stake Value: $69,203,000
Percentage of Gabelli’s Portfolio: 0.62%
Stock Price as of June 15: $186.28
Honeywell International Inc. (NASDAQ:HON) is a North Carolina-based diversified conglomerate involved in developing technologies to address the needs of aerospace, safety, and productivity. The company was a member of the Dow Industrial Average Index from 1925 to 2008. Honeywell International Inc. (NASDAQ:HON) found its place back in the prestigious market index in August 2020.
On May 25, the company reiterated its Q2 2022 adjusted EPS guidance of $1.98 to $2.08. The midpoint of $2.03 is in line with the consensus estimate. Honeywell International Inc. (NASDAQ:HON) anticipates Q2 revenue to be around $8.5 billion to $8.8 billion. The midpoint of $8.65 million falls $70 million short of the consensus estimate of $8.72 billion. The company increased the FY22 EPS guidance to $8.50 to $8.80 as opposed to the previous outlook of $8.40 to $8.70. Honeywell International Inc. (NASDAQ:HON) also announced that it intends to deploy $25 billion into its business in the next three years and execute a share buyback of $4 billion this year.
Overall, 50 funds held a stake in Honeywell International Inc. (NASDAQ:HON) at the end of Q1 2022.
7. The Walt Disney Company (NYSE:DIS)
Number of Hedge Fund Holders: 113
Mario Gabelli’s Stake Value: $68,831,000
Percentage of Gabelli’s Portfolio: 0.61%
Stock Price as of June 15: $99.40
The Walt Disney Company (NYSE:DIS) is a California-based mass media and entertainment conglomerate involved in content production, digital streaming, music, and related services. The Walt Disney Company (NYSE:DIS) is also a member of the Dow Jones Industrial Average Index and has been a constituent since 1991.
On June 6, Bryan Kraft at Deutsche Bank reiterated a Buy rating on The Walt Disney Company (NYSE:DIS) stock but lowered the target price from $191 to $130. The revised target price still provides a potential upside of more than 30% from the most recent closing price. The significant decline in target price has been due to a change in valuation methodology from sum-of-the-parts analysis to a discounted cash flow model, which considers the whole entity as a single cash-generating mechanism. Future cash flows are discounted to arrive at a target price. The analyst changed the mechanism following increased skepticism about valuing streaming businesses through enterprise value to sales multiples. Instead, investors are now more concerned about the long-term profitability and liquidity of the streaming business.
Here’s what ClearBridge Investments had to say about The Walt Disney Company (NYSE:DIS) in its Q4 2021 investor letter:
“The communication services sector was a weak spot in both the benchmark and the portfolio in the fourth quarter. Disney announced lower than expected streaming subscriber growth to the company’s Disney+ offering, attributable primarily to the content release schedule. Disney has been ramping up content spending given strong global response to Disney+, although production capability was temporarily impacted by COVID-19. We still believe Disney is on track to reach the subscriber outlook outlined at its December 2020 analyst day, driven by a very robust slate of content releases, particularly in the 2022–2024 time period.”
Out of the 912 hedge funds tracked by Insider Monkey at the end of Q1 2022, 113 funds held a stake in The Walt Disney Company (NYSE:DIS).
6. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders: 93
Mario Gabelli’s Stake Value: $67,589,000
Percentage of Gabelli’s Portfolio: 0.60%
Stock Price as of June 15: $40.08
Wells Fargo & Company (NYSE:WFC) is a San Francisco, California-based diversified financial services company involved in commercial and investment banking, equities and fixed income trading, investment management, and mutual funds.
Wells Fargo & Company (NYSE:WFC) has been under pressure as it lost its long-time shareholder Warren Buffett’s Berkshire Hathaway, during Q1 2022. Still, the company can yield long-term returns as it has started reducing its headcount to improve its efficiency ratio. Furthermore, Wells Fargo & Company (NYSE:WFC) is expected to be most benefitted from the rise in mortgage rates, and its share buyback plan is much stronger than its competitors. Wells Fargo & Company (NYSE:WFC) bought back around 10% of its outstanding shares last year.
Davis Funds mentioned Wells Fargo & Company in their fourth-quarter 2021 investor letter. Here’s what the firm said:
“The absolute level of revenues and profits generated by such companies is in fact so large that most of the major financial holdings in the portfolio produce enough annual operating income individually that a number of them could, in theory, purchase several entire businesses among hundreds of choices within the S&P 1500 Index, using just a year’s cash earnings without dipping into capital. This is theoretical, as financial companies would not be in the business of buying healthcare or technology companies, for example, but we point out these facts to illustrate the sheer scale of the economics produced by single financial companies in a given year, which is often a multiple of the cash earnings yielded by companies in a host of other industries.
Given this cash-generation power, we are naturally drawn to what we believe are strong and profitable financial institutions when the price is right. Presently, we believe the valuations of our financial holdings are not only reasonable, but extremely compelling, and our portfolio composition reflects this view. Representative financial holdings in the Fund includes Wells Fargo.”
Overall, 93 funds held a stake in Wells Fargo & Company (NYSE:WFC) at the end of Q1 2022.
In addition to Wells Fargo & Company (NYSE:WFC), Gabelli also has a stake in popular companies such as Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG), and JPMorgan Chase & Co. (NYSE:JPM) as of Q1 2022.
5. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holders: 160
Mario Gabelli’s Stake Value: $63,624,000
Percentage of Gabelli’s Portfolio: 0.57%
Stock Price as of June 15: $2,228.51
Alphabet Inc. (NASDAQ:GOOG) is a California-based tech conglomerate. The company is the third biggest technology company in terms of revenue and one of the members of the Big Five tech companies.
In a note issued to investors on June 9, Eric Sheridan at Goldman Sachs reiterated a Buy rating on Alphabet Inc. (NASDAQ:GOOG) stock with a target price of $3,000. The analyst sees Alphabet Inc. (NASDAQ:GOOG) as a defensive play in the digital advertisement industry following the rollout of Apple’s app tracking transparency (ATT) feature on April 26. Under this feature, data related to user behavior across applications and mobile websites will not be shared with advertisers, app developers, and ad performance management companies. The analyst sees Alphabet Inc. (NASDAQ:GOOG) as relatively insulated from this development.
Farrer Wealth Advisors mentioned Alphabet Inc. (NASDAQ:GOOG) in its first-quarter 2022 investor letter:
“We won’t waste much time trying to explain to our clients why Alphabet is such a phenomenal business, we believe that is quite self-evident. The better explanation is why we never bought Alphabet before. The reason was a personal bias we held based on three beliefs (which we now believe to be incorrect)
Growth in YouTube would stall as the increased ad-load would turn-off viewers (the double ad-load at the beginning of videos for example). Consumers will focus on discovery rather than search to purchase new items. For example – using Instagram/TikTok to decide what new clothes to buy instead of ‘googling’ for clothes. Other Bets: In general, we felt that capital spent on “Other Bets” has been a bit wasteful with the segment earning just around $3.1bn in revenue versus nearly $21bn in operating losses over the last five years…” (Click here to see the full text)
Overall, 160 funds held a stake in Alphabet Inc. (NASDAQ:GOOG) as of Q1 2022.
4. Mondelez International, Inc. (NASDAQ:MDLZ)
Number of Hedge Fund Holders: 48
Mario Gabelli’s Stake Value: $62,595,000
Percentage of Gabelli’s Portfolio: 0.56%
Stock Price as of June 15: $60.80
Mondelez International, Inc. (NASDAQ:MDLZ) is a Chicago, Illinois-based snack company with a presence in over 150 countries.
On May 19, John Baumgartner at Mizuho picked Mondelez International, Inc. (NASDAQ:MDLZ) as one of the stocks that must be bought following the recent decline. The analyst thinks that Mondelez International, Inc. (NASDAQ:MDLZ) is in a strong position during these uncertain economic circumstances. Baumgartner has given the stock a Buy rating with a price target of $75. This reflects a potential upside of nearly 25% from the last closing price.
During Q1 2022, Mondelez International, Inc. (NASDAQ:MDLZ) posted a significant revenue and EPS beat due to favorable pricing, volume, and margins. The company generates 40% of its sales from developing countries and is in the best position to capitalize on GDP growth.
Of the 912 hedge funds being tracked by Insider Monkey, 48 funds held a stake in Mondelez International, Inc. (NASDAQ:MDLZ) at the end of Q1 2022.
3. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 110
Mario Gabelli’s Stake Value: $55,492,000
Percentage of Gabelli’s Portfolio: 0.50%
Stock Price as of June 15: $119.55
JPMorgan Chase & Co. (NYSE:JPM) is a New York-based diversified financial services company providing solutions to corporations, governments, and institutions present across 100 countries. JPMorgan Chase & Co. (NYSE:JPM) is also a constituent of the Dow Jones Industrial Average since May 1991.
Following its investor day, Andrew Lim at Societe Generale upgraded the stock from a Hold to a Buy rating and increased the target price from $145 to $150 on May 24. The analyst stated that JPMorgan Chase & Co. (NYSE:JPM) provided a positive outlook on credit quality, investment bank trading revenues, and net interest income. Lim added that there is too much negativity priced into the stock due to fears of recession, and he anticipates significant capital generation in 2023.
Here’s what Ariel Investments has to say about JPMorgan Chase & Co. (NYSE:JPM) in its Q4 2021 investor letter:
“In our view, inflation will not just be a 2021 phenomenon. Inflationary expectations are only now working themselves into the labor market with historically low unemployment, resurgent labor unions, and higher wages. These labor cost pressures are only starting to show up in the Consumer Price Index. The most recent Producer Price Index showed a +9% year over year increase, the highest since it was created in 2010. Higher input prices generally lead to rising consumer prices.
“In our view, inflation will not just be a 2021 phenomenon.”
Consumer balance sheets are in excellent shape with lower unemployment and banked stimulus checks. A recent analysis from JP Morgan Chase (JPM) showed average checking accounts have 50% higher balances than pre-Covid. The U.S. money supply as measured by M2 (a calculation that includes cash, checking accounts, and “near cash” such as money market securities) is up +38% versus year-end 2019. Higher consumer cash holdings and higher money supply mean more spending and demand for goods. Some emphasize supply issues to explain current inflation. Going forward, we see very strong demand as well, too much money chasing too few goods.”
At the end of Q1 2022, 110 funds held a stake in JPMorgan Chase & Co. (NYSE:JPM).
2. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 99
Mario Gabelli’s Stake Value: $48,969,000
Percentage of Gabelli’s Portfolio: 0.44%
Stock Price as of June 15: $33.17
Bank of America Corporation (NYSE:BAC) is another diversified financial services company on our list. Warren Buffett’s Berkshire Hathaway Inc is the biggest shareholder in the Charlotte, North Carolina-based firm, with an ownership of 11.45%
Despite the increase in interest rate, Bank of America Corporation (NYSE:BAC) is trading at a conservative forward multiple of 10x. The conservatism is because investors are factoring in the possibility of a recession ahead. However, the generous dividend outlay and the aggressive share buyback would result in an expansion of multiples, which would provide potential upside to investors.
Chris Kotowski at Oppenheimer had given Bank of America Corporation (NYSE:BAC) a target price of $50 with an Outperform rating on May 3. The analyst pointed toward the loan growth and rising interest rate as positive catalysts. Furthermore, Kotowski added that if the economy enters into a recession, the banks are most prepared for such an outcome.
Bank of America Corporation (NYSE:BAC) was mentioned by Aristotle Capital Management in its Q1 2022 investor letter. Here’s what the asset management firm said about the company:
“We first invested in Bank of America during the second quarter of 2013. During our near decade as investors, Bank of America closed the chapter on the legacy issues from acquired Countrywide, including mortgage write-downs and substantial legal charges. In addition, it successfully turned the Merrill Lynch franchise into one of the leading U.S. brokerage and advisory firms. Thanks to what we consider to be a strong management team led by CEO Brian Moynihan, the bank went through years of simplification, improved its cost structure and efficiency ratio, and reduced risk. While we believe Bank of America remains a much-improved market leader, we decided to exit our position and use the proceeds to invest in Brookfield Asset Management.”
As of Q1 2022, 99 funds held a stake in Bank of America Corporation (NYSE:BAC).
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 259
Mario Gabelli’s Stake Value: $46,602,000
Percentage of Gabelli’s Portfolio: 0.42%
Stock Price as of June 15: $252.99
Microsoft Corporation (NASDAQ:MSFT) is a Washington-based tech giant with exposure in various industries ranging from cloud computing, consumer electronics, gaming consoles, personal computer, and software.
The company’s cloud computing platform, Azure, has taken center stage in recent quarters as it contributed $19.1 billion of $49.4 billion in quarterly sales during Q3 FY2022. The revenue from Azure and other cloud-related services increased by 46% YoY. Raimo Lenschow at Barclays thinks that Microsoft Corporation (NASDAQ:MSFT) is a “growth engine” with annual revenues of $200 billion and is experiencing broad-based growth across various segments.
Baron Funds, an asset management firm, mentioned Microsoft Corporation (NASDAQ:MSFT) in its Q1 2022 investor letter. Here’s what the firm said:
“Microsoft (NASDAQ:MSFT) re-enters our portfolio after a long gap. MSFT sells enterprise and consumer software products as well as hardware products such as the Xbox video game console and Surface laptops. All business segments experienced double-digit revenue growth and earnings per share have compounded in the mid-double digits over the last 5 years. We believe MSFT continues this momentum in the years ahead.”
As of Q1 2022, 259 funds held a stake in Microsoft Corporation (NASDAQ:MSFT).
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Disclose. None. 10 Blue Chip Stocks to Buy According to Mario Gabelli is originally published on Insider Monkey.
