GAMCO Investments leader Mario Gabelli (Trades, Portfolio) disclosed 51 new positions when he released his second-quarter portfolio earlier this week.
The guru, who will be speaking at the 2019 GuruFocus Value Conference in Omaha, Nebraska next May, picks stocks of companies that are underpriced in order to achieve long-term growth of capital and provide current income. GAMCO strives to earn at least a 10% real rate of return on its investments.
Gabelli’s top five new buys for the quarter were Evergy Inc. (EVRG, Financial), USG Corp. (USG, Financial), Foundation Medicine Inc. (FMI, Financial), comScore Inc. (SCOR, Financial) and Abaxis Inc. (ABAX, Financial).
Evergy
The guru invested in 792,354 shares of Evergy for an average price of $53.33 per share, allocating 0.3% of the equity portfolio to the position.
The Topeka, Kansas-based electric company has a market cap of $15.65 billion; its shares were trading around $57.79 on Tuesday with a price-earnings ratio of 24.73, a price-book ratio of 1.43 and a price-sales ratio of 3.05.
The Peter Lynch chart below shows the stock is trading above its fair value, suggesting it is overpriced.
Evergy’s financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. The company’s financial position has been impacted as a result of issuing $695.7 million in new long-term debt over the past three years and declining revenue per share. Additionally, the Altman Z-Score of 0.84 indicates the company is at risk of going bankrupt. Despite these challenges, the operating margin is expanding and the Piotroski F-Score of 4 implies business conditions are stable. The company also has a one-star business predictability ranking. According to GuruFocus, companies with this rank see average growth of 1.1% per year in stock price. The rank is on watch, however, as the company’s revenue is in decline.
Of the gurus invested in Evergy, the T Rowe Price Equity Income Fund (Trades, Portfolio) has the largest position with 0.63% of outstanding shares. Hotchkis & Wiley also owns the stock.
USG
Gabelli picked up 661,739 shares of USG for an average price of $41.53 per share, dedicating 0.19% of the equity portfolio to the holding.
The construction materials manufacturer, which is headquartered in Chicago, has a $6.01 billion market cap; its shares were trading around $43.13 on Tuesday with a price-earnings ratio of 66.31, a price-book ratio of 3.22 and a price-sales ratio of 1.86.
According to the Peter Lynch chart below, the stock is overpriced since it is trading higher than its fair value.
GuruFocus rated USG’s financial strength 6 out of 10. While the company’s interest coverage barely meets Benjamin Graham’s standard of 5, the Altman Z-Score of 2.99 indicates it is financially strong. The company’s profitability and growth scored a 4 out of 10 rating, boosted by an expanding operating margin, a moderate Piotroski F-Score of 5 and a one-star business predictability ranking.
Only one other guru shows confidence in the company, which is Warren Buffett (Trades, Portfolio). The “Oracle of Omaha” owns 27.96% of outstanding shares. Gabelli holds 0.47%.
Foundation Medicine
The investor established an 185,500-share holding in Foundation Medicine for an average price of $90.69 per share, giving the position 0.17% space in the equity portfolio.
Headquartered in Cambridge, Massachusetts, the producer of genomic analysis diagnostic tests has a market cap of $5.09 billion; its shares were trading around $137 on Tuesday with a price-sales ratio of 24.9.
Based on the median price-sales chart below, the stock appears to be trading well above its historical value.
Foundation Medicine’s financial strength was rated 5 out of 10 by GuruFocus. While the company has poor cash-to-debt and debt-to-equity ratios, its Altman Z-Score of 10.10 suggests it is financially strong. The company’s profitability and growth did not fare as well, scoring a 4 out of 10 rating. Even though the operating margin is expanding, it still underperforms 74% of competitors. In addition, it has a Piotroski F-Score of 3, which implies poor operating conditions.
With 2.25% of outstanding shares, Discovery Group I, LLC is the company’s largest guru shareholder. Ron Baron (Trades, Portfolio) is also a shareholder.
ComScore
Having previously closed a position in comScore in the second quarter of 2017, Gabelli opened a new 1.05 million-share stake for an average price of $22.47 per share. The trade had an impact of 0.16% on the equity portfolio.
The Virginia-based analytics company, which measures audiences, brands and consumer behavior, has a $1.11 billion market cap; its shares were trading around $18.96 on Tuesday with a price-book ratio of 1.85 and a price-sales ratio of 2.63.
The median price-sales chart below shows the stock is trading below its historical value.
GuruFocus rated comScore’s financial strength 5 out of 10 as it has low cash-to-debt and debt-to-equity ratios. The company’s profitability and growth did not fare as well, scoring a 1 of 10 rating as its margins and returns are negative and underperform industry peers. One strong factor supporting the company is that it has a one-star business predictability ranking.
PRIMECAP Management (Trades, Portfolio) is the company’s largest guru shareholder with 14.25% of outstanding shares. Chuck Royce (Trades, Portfolio) also holds the stock.
Abaxis
The guru purchased 123,800 shares of Abaxis for an average price of $76.66 per share, expanding the equity portfolio by 0.07%.
The California-based veterinary diagnostics company was recently acquired by Zoetis Inc. (ZTS, Financial) for $2 billion. With a market cap of $1.9 billion, its shares ceased trading on July 31, closing at $83.
Other guru investors who cashed in on the opportunity were Primecap, Steven Cohen (Trades, Portfolio) and Royce.
Additional trades
During the quarter, Gabelli also established positions in Biglari Holdings Inc. (BH.A, Financial), Granite Construction Inc. (GVA, Financial), Cotiviti Holdings Inc. (COTV, Financial), Molson Coors Brewing Co. (TAP, Financial) and Activision Blizzard Inc. (ATVI, Financial), among others.
The Rye, New York-based firm’s vast portfolio of 831 holdings is largely invested in the industrials and consumer cyclical sectors. According to GuruFocus, the Gabelli Asset Fund Class AAA underperformed the S&P 500 in 2017 with a return of 20.16%. The index posted a 21.71% return.
Disclosure: No positions.
