Mario Gabelli, the manager of GAMCO Investors is a money manager, whose activity we follow closely at Insider Monkey. One of Mr. Gabelli’s key points in picking stocks is that he focuses on cash flows rather than earnings. This allows the investor to calculate the so-called private-market value of the company, or what someone would be willing to pay to buy the company. This strategy workes well for GAMCO, which on average managed to beat the market every year and in 1997 Gabelli equity funds posted a return of almost 32%, which was the best result among all U.S. mutual fund groups. Following this exceptional performance, Gabelli was offered the “equity fund manager of the year” award by Morningstar, Inc. At the end of 2014, GAMCO revealed an equity portfolio valued at $19.20 billion. Moreover, Mr. Gabelli’s equity portfolio is highly diversified and contains over 900 long positions spread across several sectors, primarily Industrials and Consumer Discretionary, which in aggregate amass around half of the equity portfolio value. Mr. Gabelli was invited to CNBC today to discuss some companies that he likes, such as International Flavors & Fragrances Inc (NYSE:IFF), Patterson Companies, Inc. (NASDAQ:PDCO), Navistar International Corp (NYSE:NAV), Sony Corp (ADR) (NYSE:SNE), and Viacom, Inc. (NASDAQ:VIAB). The investor owns shares of all this companies according to GAMCO’s latest 13F filing, the majority of holdings in these companies represent less than 1% of the total value of the equity portfolio.
International Flavors & Fragrances Inc (NYSE:IFF) is Mr. Gabelli’s favorite stock in the health and wellness segment. He considers that individuals will become more and more interested in consuming less salt and sugar and will develop an awareness towards ingredients exposed to antiobiotics, companies that operate in the flavor segment, such as International Flavors & Fragrances Inc (NYSE:IFF) will shine. International Flavors & Fragrances is not doing bad at the moment. The stock is up by 27% over the last year, and over the last three years the company posted solid top and bottom line growth. GAMCO holds 1.26 million shares of the company, valued at $127.96 million as of the end of 2014. However, the position amasses only 0.67% of the fund’s equity portfolio and ranks on the 35th spot in terms of value. Nevertheless, among the investors that we track, GAMCO is the largest shareholder of International Flavors & Fragrances Inc (NYSE:IFF), followed by Phill Gross and Robert Atchinson‘s Adage Capital Management with 515,800 shares.
Mr. Gabelli also said that he is fond of companies engaged in providing care for companion pets, such as Patterson Companies, Inc. (NASDAQ:PDCO), which is also engaged in providing dental supplies. Even though the company has some challenges, Mr. Gabelli is still bullish on the stock, one of the reasons being the growing number of pets in the U.S. and customers have to pay to buy products for their pets and pay for their care. GAMCO owns 1.80 million shares of Patterson Companies, Inc. (NASDAQ:PDCO) as of the end of 2014, the value of the stake amounting to $86.53 million. The position is 69th in terms of value, amassing 0.45% of the fund’s equity portfolio. The largest shareholder of Patterson Companies, Inc. (NASDAQ:PDCO) is Yacktman Asset Management, led by Donald Yacktman, which owns 2.39 million shares, according to its latest 13F filing.
Mr. Gabelli also things that Navistar International Corp (NYSE:NAV) is a bargain at $28 per share. The investor believes that the company could benefit from consolidation in Europe within the next year. Among all companies mentioned by Mr. Gabelli during the interview, Navistar represents the second-largest holding in GAMCO’s equity portfolio. The fund owns 6.10 million shares of the company, up by 456,300 shares on the quarter; the value of the stake amounts to $204.35 million, which represent 1.06% of the portfolio value. Billionaire activist investor Carl Icahn is also bullish on Navistar International Corp (NYSE:NAV), holding 16.27 million shares as of the end of 2014. In 2013, Mr. Icahn and Navistar International Corp (NYSE:NAV) reached an agreement that allowed the investor to hold up to 20% of the company’s stock and nominate two directors to the board.
The manager of GAMCO Investors is also fond of Sony Corp (ADR) (NYSE:SNE), of which GAMCO holds 5.88 million shares, valued at $120.32 million. Mr. Gabelli considers that Japan’s prime minister Shinzo Abe “has given the animal spirit to the Japanese.” The investor also highlighted Sony’s virtual reality headset “Morpheus” and the launch of PlayStation 4 as game changers for the company in the near future. Sony is up by 63% over the last 52 weeks, outperforming the consumer electronics industry, which gained around 35% during the same period. Among other funds that we track, Daniel S. Och‘s OZ Management initiated a stake in Sony Corp (ADR) (NYSE:SNE) during the fourth quarter, holding 2.99 million shares. Sony Corp (ADR) (NYSE:SNE) also has laid off 2,000 employees in Asia and Europe in the last six months, a move that was saluted by Mr. Gabelli as an attempt to focus on profits.
Mr. Gabelli also said that he likes Viacom, Inc. (NASDAQ:VIAB) not just because the company has done “a lot of things right,” but also because he considers that the sale of the company is imminent, the main question about the company being “not if but when the family [Redstone] decides to sell.” Therefore, even though Viacom, Inc. (NASDAQ:VIAB) has strong fundamentals, the company is one of Mr. Gabelli’s bets in the Mergers & Acquisitions space. The last 13F filing showed that GAMCO owns both class A and Class B shares of Viacom. The fund reported holding 3.34 million class A shares of Viacom, Inc. (NASDAQ:VIA), the $252.10 million stake, amassing 1.31% of the fund’s equity portfolio. Additionally, GAMCO owns 254,600 class B shares of the company, valued at $19.16 million. Warren Buffett is also bullish on Viacom, Inc. (NASDAQ:VIAB), holding around 8.63 million class B shares as of the end of 2014.
Watch Mr. Gabelli’s interview below:
Following the activity of great investors and tracking stocks that they like can turn out to be a profitable strategy for retail investors. However, most funds prefer to invest in large-cap companies and immitating their most popular picks will not get you far, because as we have determined, 50 most popular stocks among hedge funds and other investment firms outperformed the market by 7.0 basis points per month between 1999 and 2012. On the other hand, investing in small-cap picks can give an edge in beating the market, as our research also showed that this strategy can beat the market by 1 percentage point per month on average. Moreover, our small cap strategy posted cumulative returns of 132% since March 2012 and beat the market by 79 percentage points.