Mario Gabelli recently participated in the Barrons Roundtable where he revealed some of his favorite stock picks for 2013. Interestingly, two of Gabelli's favorite stocks are sausage makers.
Gabelli is bullish on Hillshire Brands (HSH) which is a processor of sausages and hot dogs:
"Hillshire has 122 million shares outstanding. Investors got one share for every five shares of Sara Lee. Hillshire had $694 million of net debt as of Sept 29. It will generate $4.1 billion of revenue in the fiscal year ending June 30. Earnings will be $1.60 to $1.65 a share. Three or four companies were looking to buy Hillshire from Sara Lee before it was spun off.
"The sausage market is growing by about 5% a year in the U.S. Breakfast sausages are a $4.6 billion annual business. Lunch meats are $4.8 billion. The lowly hot dog is about a $2.5 billion market. Hillshire is a leader in all three categories. It could earn about $2.40 a share in fiscal 2017. Debt is falling substantially. The stock trades for $29 and change, and could be $35 to $50 a share two years out."
Gabelli is also bullish on another sausage maker, called Nathan's Famous (NATH) which has been selling hot dogs for almost 100 years:
"One of the dynamics behind Nathan's Famous (NATH) is a capitalization shrink. The company has reduced its share count to 4.2 million from 6.2 million. The shares are $35, and the company has a $140 million market capitalization. It cut a deal with Smithfield Foods (SFD) which will market its products starting in March 2014. As a result, earnings will explode upward to about $3 a share in 2015 from an estimated $1.20 this year. The market soon will start discounting that."