Mario Gabelli and his mutual fund GAMCO Investors are veritable institutions in the investing world, having been in business since 1986. With a public equity portfolio valued at a sizable $19.06 billion, Gabelli is also no stranger to managing huge sums of money and still generating positive returns. Nor is his massive mutual fund’s disclosed portfolio as diversified as you might think; over 50% of Gabelli’s investments are in the consumer discretionary and industrials sectors. However, let’s look beyond the bulk of his picks towards his bets on small-cap stocks, with his top picks in this regard being Navistar International Corp (NYSE:NAV), Ryman Hospitality Properties Inc (NYSE:RHP), and GATX Corporation (NYSE:GMT).
Hedge funds and other big money managers like Gabelli tend to have the largest amounts of their capital invested in large and mega-cap stocks like DIRECTV (NASDAQ:DTV) because these companies allow for much greater capital allocation. That’s why if we take a look at the most popular stocks among funds, we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by seven basis points per month, showing that their most popular picks and the ones that received the bulk of their capital were not actually their best picks. On the other hand, their top small-cap picks performed considerably better, outperforming the market by 95 basis points per month. This was confirmed through backtesting and in forward tests of our small-cap strategy since August 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds has provided gains of more than 144%, beating the broader market by over 84 percentage points through the end of April (see the details).
Gebelli’s 13F filing for the reporting period of March 31 revealed that GAMCO decreased its stake in Ryman Hospitality Properties Inc (NYSE:RHP) by 1% to 5.01 million shares with a value of $305.23 million. Nonetheless, the stock moved up into second in Gabelli’s overall portfolio, and was the only small-cap pick in his top ten stocks. The Tennessee-based Ryman Hospitality Properties Inc (NYSE:RHP) has been having a fair performance on the stock exchange this year, returning 5% year-to-date. On May 6, Ryman Hospitality Properties Inc (NYSE:RHP) reported earnings per share of $1.14 for the first quarter which while high, was only in-line with analysts; expectations given the high results achieved in the fourth quarter of 2014. Likewise, analysts are expecting Ryman Hospitality Properties Inc (NYSE:RHP) to have a very strong second quarter as well, estimating its earnings per share to be $1.46. According to analysts the markets for Ryman Hospitality Properties Inc (NYSE:RHP) are increasingly good and they are expecting expenditures on leisure to increase by 6%. Furthermore, advance group booking has increased by 21%, indicating that higher revenue is to be expected. The newly-acquired hotel in the Maryland harbor is also expected to generate a boost to the company’s income. Bernard Selz’s Selz Capital as well as James Dondero‘s Highland Capital Management seem to agree upon this bullish sentiment, having increased their stakes in Ryman to 365,400 and 272,970 shares respectively.
Gabelli also decreased his stake in railway equipment company GATX Corporation (NYSE:GMT), his second-most valuable small-cap position, by 2% to 3.41 million shares valued at $197.80 million. Chicago-based GATX, which is operating in a fairly cyclical industry, has dipped by 1% and 14% over the past five and 12 months respectively. The company is currently bracing for the impact that new regulations related to the retirement of tank cars for flammable liquids, which may affect 13,700 or around 11% of the company’s tank fleet, will have on its finances. GATX’s earnings results for the first quarter did beat analysts’ expectations with earnings of $1.39 compared to expectations of just $1.08. Maybe the most attractive characteristic of GATX however is its ability to pay good and continuous dividends. Since 2011 its dividend payments have been continuously raised, most recently by another 15.2% in February. Other hedge funds with positions in GATX Corporation (NYSE:GMT) include Skylands Capital, managed by Charles Paquelet, which increased its stake to 374,450 shares and Citadel Investment group, which boosted its stake by 629% to 398,751 shares.
Finally, GAMCO increased its stake in automotive company Navistar International Corp (NYSE:NAV) by 7% to 6.52 million shares valued at $192.3 million. Chicago-based Navistar, founded in 1902, has been having a tough year, dropping by 21.2% year-to-date. Even though the company’s revenue has increased, concerns regarding the South American market and Environmental Protection Agency (EPA) regulations are affecting the share price negatively. The increased revenue didn’t met the analysts’ expectations but the loss per share for the company’s fiscal first quarter of 2015 ending on January 31, was better than expected at $1.10. Analysts are indeed dubious regarding Navistar International Corp (NYSE:NAV), with Morningstar giving it a B- credit rating last month, implying a high probability of default. Notably, activist Carl Icahn‘s Icahn Capital has a large stake of 16.27 million shares in Navistar valued at $480.04 million and has been active in the past regarding the company’s governance.