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Mario Gabelli Surges to Record $40B AUM - Dell, Acme Packet, Boulder Brands Top List of New Buys
Posted by: Holly LaFon (IP Logged)
Date: May 10, 2013 09:52PM
Massive amounts of funds have flowed into Mario Gabelli in recent years. His firm, GAMCO investors, announced this week that its assets under management have surged to a record $40.1 billion, after hitting $36.4 billion at the end of 2012, which marked the fifth straight year of growth. His pronounced success beating the market likely accounts for drawing the new clients. In 2012, he delivered a 16.9% gross return and 16.3% return net of fees, compared to the S&P 500’s 16%. The longer-term track record is 16.7% gross and approximately 15.8% net of fees from 1977 through 2012, placing him in rarefied territory. “We ask anyone to find another asset management organization, unlevered and tax sensitive, and demonstrate how they matched or exceeded this return over a comparable period,” Gabelli challenges in his 2012 annual report.
Unraveling his secret requires little research. He clearly attributes his record to “Our Graham, Dodd, Murray (and now Greenwald) roadmap as well as a terrific stock market since we started the firm (ignoring 1977-81, ’87, ’90, ’94, 2001-2002, 2008)” in his 2012 report.
The remainder of his annual report dismisses passing fads such as the current “dynamic trading,” and re-affirms the efficacy of tried-and-true fundamental research, or his trademark Private Market Value (PMV) with a Catalyst stock selection process.
Gabelli also generally keeps turnover in his value-based mutual funds low. Last year, his Asset fund had turnover of 4%, while funds involving with merger and acquisition activity had higher turnover rates – one as high as 256%.
As far as his outlook for the markets, Gabelli expected money from U.S. fixed-income markets to begin flowing into common stocks in 2013. A fixture of financial television broadcasting, Gabelli in February proclaimed on CNBC’s Squawk Box that two stocks would double in a reasonable period: Gencorp (GY) and Legg Mason (LM).
In the context that Gabelli holds stocks in his main fund for 12 years on average, he picked 41 new ones in the first quarter, for his total holding of 793 stocks and a 6% quarter-over-quarter turnover, consistent with his typical behavior.
According to GuruFocus’ portfolio update for Gabelli, the following topped his list of new buys: Dell Inc. (DELL), Acme Packet (APKT) and Boulder Brands Inc. (BDBD).
Mario Gabelli purchased 2,191,410 shares of Dell Inc. for $13 per share on average in the first quarter of 2013. The stock has increased 0.4% from his average price.
Dell is currently engaged in a battle between founder and CEO Michael Dell, who want to acquire the company, and hedge fund gurus and shareholders, who for the most part want a higher price per share than Dell is offering.
Just today, activist investor Carl Icahn announced he plans to nominate his own board members to the company to change its direction. In a plan devised with guru Southeastern Asset Management led by Mason Hawkins, he is demanding shareholders receive $12 per share cash dividend, or $12 worth of shares priced at $1.65 per share.
Previously, Icahn had offered $15 per share for the whole company, a counter to Michael Dell’s $13.65 per share offer in February to take the company private.
The gurus, who together own about 13% of the company, have been fighting furiously for what they believe is a more fair price for the company than Dell and private equity firm Silver Light initially offered. “Either give shareholders the real choice they are entitled to or face the legal liability for your failures,” they wrote in a joint letter to Dell on Friday.
Dell’s shares have responded to the fracas by gaining 33% year to date. In 2012, worries about continued weakness the company’s PC sales caused shares to falter to a multi-year low of $9 in November.
Dell’s revenue has declined over the past 12 months, and it has issued $4.2 billion in debt over the past three years, problems GuruFocus ranks as medium in severity. The company continues to have a solid balance sheet, however, with more than $13.6 billion in cash, although reserves shrank from $14.6 billion in fiscal 2012.
Dell’s ratios: P/E 9.9, P/B 2.2 and P/S 0.40.
Acme Packet (APKT)
Gabelli bought 851,100 shares of Acme Packet Inc. for his second-largest new holding in the first quarter. The position is valued at $24.9 million on Friday and is equivalent to 1.26% of the company.
Acme Packet was a mergers and acquisitions play for Gabelli. The company was acquired on March 28 by Oracle (ORCL). Oracle paid $29.25 per share in cash, a total of $2.1 billion in fully diluted equity value, for the company. Oracle announced the deal on Feb. 4. Acme Packet said the merger would “accelerate the migration to all-IP networks by enabling secure and reliable communications from any device, across any network,” and their board unanimously approved the transaction. Shares shot from $23.39 the day before the deal’s announcement, to near the purchase price of just over $29 coinciding with the deal’s announcement.
Boulder Brands Inc. (BDBD)
Gabelli bought 2,712,359 shares of Bounder brands at an average price of $12 per share in the first quarter. After the purchase, he owns 4.56% of the company. Shares trade at 16% below his average purchase price on Friday, or $9.70 per share.
Boulder Brands owns a number of health food brands, including recognized names Smart Balance, Earth Balance and Bestlife, and has made significant inroads into the gluten-free markets. Its market cap has topped $557 million.
Gabelli may have jumped on the company’s several-dollar drop at the end of February (approximately 12% on Feb. 28) when it announced quarterly earnings. Even with the drop, from which its price has yet to recover, the shares have gained 83% in the trailing 12 months.
Although fourth-quarter earnings per share of $0.06 beat estimates and revenues increased 34.7% to $113 million, in line with estimates, the company was plagued by a critical report from Prescience Point accusing it of accounting manipulation. Prescience assigned the shares a $4 intrinsic value and said Smart Balance patents would expire in about two years.
Another embattled stock, short interest has increased to 8,865,859 on last report dated April 30, from 2,597,646 almost a year previously.
GuruFocus finds the company has four warnings signs, for gross margin in long-term decline, operating margin in five-year decline, debt issuances for three years and inventory building up. It also reported an operating loss for the past three years.
Boulder Brands’ ratios: P/E 131.7, P/B of 1.6 and P/S 1.43.
In addition to these new buys, Gabelli’s largest new positions include shares of Liberty Media spin-off Starz Inc. (STRZA), Obagi Medical Products (OMPI), SeaCube Container Leasing Ltd. (BOX) and Virgin Media Inc. (VMED).
See more of the Guru’s buys and sells here, updated for the first quarter.
Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Mario Gabelli.
Guru Discussed: Mario Gabelli: Current Portfolio, Stock Picks
Stocks Discussed: DELL, APKT, BDBD, ORCL, STRZA, BOX, VMED, OIP,