Guru Mario Gabelli (Trades, Portfolio) appeared on CNBC and talked auto stocks –Â category in which he has been extraordinarly successful lately. Not that he needed it. His reputation as a value investor who often engages with management is well established. I highly recommend taking notes of what he likes to buy in quantity. His top holding is Cablevision Systems Corp. (CVC) but I digress from what I wanted to talk about which is two of his interesting auto picks:
Ferrari
Ferrari got spun out (in part) of Fiat Chrysler (FIATY, Financial), a company I highlighted on GuruFocus back in March. The reason Gabelli is interested in the company is because of its incredible brand. Ferrari licenses that brand to manufacturers who use it to turn out Ferrari-branded product. Contrary to building supercars this is an extremely asset-light business model where almost all of the revenue falls straight to the bottom line. There is a risk there, though, because the company has to be careful not to overdo it. Too much Ferrari-branded mainstream products can cheapen the brand quickly. Just do a search on Amazon (AMZN, Financial) for Ferrari to see what is out there. Businesses that are asset light and have the potential to grow can easily trade at a 16x to 20x multiple which Gabelli suggested the royalty income deserves. The value of that licensing business alone justifies a large part of Ferrari's market cap. Fiat Chrysler only spun off 10% of its stock to trade on the open market. The other 80% it is going to release will be issued to Fiat Chrysler shareholders. That means buying Fiat Chrysler stock is another way to get your hands on Ferrari stock.
Navistar
Gabelli's take-over tip is Navistar (NAV). It currently trades at around $12 and he thinks it will be acquired in the next few years. Gabelli owns 7% of the shares, and he is not the only guru to like it as Carl Icahn (Trades, Portfolio) owns no less than 20% of its shares. The truckmaker trades at a forward P/E of 7.8x but is currently still loss making and heavily indebted. What I like about the company is that insiders own 30% of the shares and have been buying more in the past six months. We also should not forget Gabelli is an even-driven specialist, and he calls out the acquirer saying it will be Iveco which is owned by CNH Global (CNH).
