In this article, we discuss 10 blue-chip stocks to buy according to Mario Gabelli. If you want to skip our discussion on Gabelli’s investment philosophy and hedge fund performance, go directly to 5 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.
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Disclose. None. 10 Blue Chip Stocks to Buy According to Mario Gabelli is originally published on Insider Monkey.
