Mario Gabelli Reveals His Secrets to Beating the Market and Offers Some Favorite Stock Picks

By Michael Brush

The seasoned investor's recipe: find a good company with good management, buy the shares at a reasonable price and hold them for the long term.

One of the best things you can do as an investor is study established professionals who have accumulated exceptional track records. Value stock investor Mario Gabelli fits the bill, with more than five decades of stock market experience.

Gabelli's GAMCO Investors oversees $32.4 billion in assets. It has 32 mutual funds, including two that recently caught my attention due to their substantial outperformance: Gabelli Small Cap Growth Fund GABSX and Gabelli Global Mini Mites Fund GAMNX.

According to Morningstar Direct, both have outperformed their benchmarks and fund categories by up to 6% on an annualized basis over the past three and five years. It's not easy to do. Gabelli manages the small-cap fund and co-manages Global Mini Mites. I thought it would be interesting to meet him to see what we can learn about investing, get his views on the economy and the stock market, and hear about some of his favorite picks these days- this. (This interview has been edited for length and clarity.)

MarketWatch: Let's start with the big picture. What is your outlook for the American economy?

Gabelli: That's not what we do. But the consumer is in great shape, except that part of the consumer in the United States is pressed for food and fuel. [prices].

Obviously, the big question is geopolitical dynamics. You would think that at some point, someone would have to deal with the Middle East puppet master. [Iran], and if they do, it could send the price of oil skyrocketing. I went through the period 1973-74 until 1980-81, during which oil increased significantly. It's a wild card.

So the economy is doing well. Corporate cash flow is quite good. Gross margins are better. There is a geopolitical risk which could cause a fairly strong decline. Other than that, okay.

MarketWatch: This is probably not a good question for a value investor, but do you have a near-term outlook for the stock market?

Gabelli: We like volatility. Every time a company reports results, the quants, the algos and the “momo” [momentum] investors pick it up and trade it. You have a lot of short-term trading and it's ongoing, so market volatility is expected. I have no strong emotions, other than to point out that there is no margin of safety due to geopolitical risk.

MarketWatch: Let's talk stock picking. What are you doing that contributes to outperformance?

Gabelli: We are a research boutique. Every year we organize conferences on the automotive industry, health and chemistry. So we can see 200 or 300 companies over the course of the year just through our own conferences. Style is all about learning about an industry. Learn more about a company. Visit the management and visit the lounges.

For example, due to my experience in the auto parts industry, I studied Strattec Security (STRT). They make tailgates. You and I have a key or key fob for our car. There are 285 million cars in the United States; they have DNA in about 80% of them. This means they can duplicate the keys if you lose them.

One of the things that could give this company a significant multiple is if they can build a website that allows them to sell them online to generate recurring revenue. I think this company could earn between $4 and $6 per share in its auto business. I think they will do well over the next 12 to 18 months because I think auto production will do well even with higher interest rates for longer.

MarketWatch: What other lessons can we learn about your approach to stocks?

Gabelli: The idea of ​​owning a good business with good management, buying at a reasonable price and holding it for the long term. I'll give you an example: GATX (GATX) from Chicago. We have owned it for 35 years. The stock has been growing slowly but it also pays a dividend. They rent wagons. They know how to buy cars and how to sell them. They know how to refurbish them. They know the prices. We like them to buy back shares. We have a cost of $28 in the small cap fund. We bought some recently.

In commercial aviation, there is a company called Textron (TXT). It's a decent company. Another good example is United Rentals (URI), which concerns equipment used in construction; I have been with United Rentals for 20 years. We are the largest shareholder of Herc Holdings (HRI), in equipment rental.

Ryman Hospitality Properties (RHP) operates the Grand Ole Opry. Country [music] is becoming more and more popular thanks to Beyoncé and others. Ryman also has convention centers and they have done a really good job with those.

In the auto parts business, AutoZone (AZO) and O'Reilly Automotive (ORLY) really know how to train professional mechanics and individuals who come in and try to do it themselves. Another example is Deere (DE). So these are all examples of good management and good business.

“We like to hold securities for the long term, not only because we want to make money, but also because we want our clients to hold it. »

MarketWatch: You place great importance on holding stocks for the long term. Is it to reduce the capital gains tax rate?

Gabelli: We are in the marathon business. We like to hold securities for the long term, not only because we want to make money, but also because we want our clients to hold onto it. I can't do what exchange-traded funds do, which is wipe out capital gains and stop shareholders from paying the government. So we tend to buy and hold for an extended period of time. We try to be tax sensitive. I can use the savings for taxable accounts and compound it at a huge rate. This is what Warren Buffett does. This is what we like to do: generate long-term capital gains and preserve heritage.

MarketWatch: I've heard you say that you like to own stocks of overlooked and unloved companies.

Gabelli: Analysts like me are a dying breed. Analysts who cover sectors are disappearing. You want to find companies that simply don't have a following. If they're not in an index, that makes them even more adorable.

For example, I'm looking at a company called National Presto Industries (NPK). They make pots and pans. I started following him because years ago I was interested in household appliances. They also have an ammunition company, so it's not for everyone. But they have a good track record and smart management. Every year they make a big distribution of money.

MarketWatch: What else do you look for in a company?

Gabelli: We are looking for catalysts. Is there any consolidation in the sector? Is there a change in regulation that will cause an industry to come together? Is something happening in another segment? These would be examples of catalysts.

For example, in the United States, hopefully every four years there will be elections to elect the president and other politicians. Money is spent on television. Linear television still gets a substantial portion of that money.

An example of a company that will benefit is Tegna (TGNA). TV spending on presidential and political elections gives them a lot of cash flow, and that cash flow will be used to buy back more stock.

They had a deal to buy out in a bidding process for $24 per share, and the Federal Communications Commission had the crazy idea of ​​not allowing the deal to go through. They are for sale. They are well managed. And we believe you can earn 50% in 12 months.

We are also large shareholders of the Atlanta Braves (BATRA). Given everything we know about John Malone and Greg Maffei, we think they will sell the company. Buy one Atlanta Braves stock and we think you'll get $55 in 12 to 18 months.

Michael Brush is a columnist for MarketWatch. At the time of publication, he owned BATRA, the Gabelli Equity Trust (GAB) and the Gabelli Healthcare & Wellness Trust (GRX). Brush suggested AZO and BATRA in his stock market newsletter, Brush Up on Stocks. Follow him on X @mbrushstocks.

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Also Read: 4 Ways to Defend Your Stock Portfolio That Helped This Fund Manager Beat the Market

-Michael Brush

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05-04-24 1414ET

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