Mario Gabelli (Trades, Portfolio), leader of New York-based GAMCO Investors, disclosed in his fourth-quarter portfolio, which was released earlier this week, that he established 33 new positions.
With the goal of generating long-term capital appreciation, the renowned investor, who will be speaking at the GuruFocus Value Conference in May, and his team look for undervalued companies with a catalyst.
The guru’s top five new buys for the quarter were Apptio Inc. (APTI, Financial), Garrett Motion Inc. (GTX, Financial), Tesaro Inc. (TSRO, Financial), Imperva Inc. (IMPV, Financial) and Red Hat Inc. (RHT, Financial).
Apptio
Gabelli invested in 267,359 shares of Apptio for an average price of $33.94 per share, allocating 0.09% of the equity portfolio to the holding.
The Bellevue, Washington-based company, which develops technology business management software, has a $1.73 billion market cap; its shares were trading around $37.97 on Thursday with a price-book ratio of 10.93 and a price-sales ratio of 7.30, which GuruFocus notes are near multiyear highs.
The chart shows the stock is trading above its median price-sales and median price-book values.
GuruFocus rated Apptio’s financial strength 5 out of 10. In addition to having a high cash-debt ratio of 2.32, the Altman Z-Score of 4.10 suggests the company is in good fiscal standing. The company’s profitability and growth scored a 4 out of 10 rating, weighed down by negative margins and returns that underperform competitors. The Piotroski F-Score of 6, however, indicates business conditions are stable.
Of the gurus invested in Apptio, Jim Simons' (Trades, Portfolio) Renaissance Technologies has the largest position with 1.11% of outstanding shares. Steven Cohen (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Caxton Associates (Trades, Portfolio) are also shareholders.
Garrett Motion
The guru picked up 553,667 shares of Garrett Motion for an average price of $13.45 per share, dedicating 0.06% of the equity portfolio to the position.
The Swiss auto parts manufacturer, which went public last September, has a market cap of $1.15 billion; its shares were trading around $16.02 on Thursday with a forward price-earnings ratio of 3.75 and a price-sales ratio of 0.45.
The stock has tumbled approximately 30% since its initial public offering.
Garrett Motion’s financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. Despite having adequate interest coverage, the Altman Z-Score of 0.42 warns the company is at risk of going bankrupt since it has poor earnings quality. The fledgling company’s margins and returns are also strong and outperform a majority of industry peers.
With his purchase of 0.75% of outstanding shares, Gabelli became Garrett Motion’s largest guru shareholder. Other gurus who see value in the stock are PRIMECAP Management (Trades, Portfolio), Mairs and Power (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Greenblatt, Leucadia Naitonal, Murray Stahl (Trades, Portfolio), Dodge & Cox and First Pacific Advisors (Trades, Portfolio).
Tesaro
The investor purchased 97,450 shares of Tesaro for an average price of $48.90 per share, giving it 0.06% space in the equity portfolio.
The oncology-focused biopharmaceutical company, which is headquartered in Massachusetts, has a $4.13 billion market cap; its shares were trading around $74.96 on Thursday with a price-sales ratio of 18.70, which GuruFocus says is near a one-year high.
The median price-sales chart shows the stock is trading below its historical value.
Tesaro’s financial strength and profitability and growth were both rated 3 out of 10 by GuruFocus. In addition to having a low cash-debt ratio of 0.74, the Altman Z-Score of -2.52 indicates the company is in danger of bankruptcy. The drugmaker is also being hurt by negative margins and returns that underperform industry peers. In addition, the low Piotroski F-Score of 2 suggests poor business conditions.
Gabelli holds 0.18% of the company’s outstanding shares.
Imperva
Gabelli bought 109,200 shares of Imperva for an average price of $54.51 per share. The trade had an impact of 0.05% on the equity portfolio.
The California-based company, which provides cybersecurity software and services, was acquired by private equity firm Thoma Bravo on Jan. 10. With a market cap of $1.98 billion, its shares closed its final day of trading at $55.74 on Jan. 9.
Other gurus who benefited from the transaction were Simons’ firm, Paul Singer (Trades, Portfolio), Cohen and Jones.
Red Hat
The value investor picked up 31,167 shares of Red Hat for an average price of $159.61 per share, expanding the equity portfolio 0.05%.
The Raleigh, North Carolina-based software company, which is in the process of being acquired by IBM (IBM, Financial), has a $31.26 billion market cap; its shares were trading around $176.84 on Thursday with a price-earnings ratio of 120.29, a price-book ratio of 21.86 and a price-sales ratio of 10.21, which are near multiyear highs.
According to the Peter Lynch chart, the stock is overpriced since it is trading higher than its fair value.
Supported by adequate interest coverage and a robust Altman Z-Score of 6.73, Red Hat’s financial strength was rated 7 out of 10 by GuruFocus. The company’s profitability and growth fared even better, scoring a 9 out of 10 rating. In addition to operating margin expansion, the company is benefiting from margins and returns that outperform competitors and a high Piotroski F-Score of 7, suggesting operations are healthy. It also has a business predictability rank of four out of five stars. In addition to posting consistent earnings and revenue growth, GuruFocus says companies with this rank typically see their stocks gain an average of 9.8% per year.
Spiros Segalas (Trades, Portfolio) is Red Hat’s largest guru shareholder with a 1.14% stake. Other gurus hoping to benefit from the acquisition deal are Pioneer, Greenblatt, Ron Baron (Trades, Portfolio), Ray Dalio (Trades, Portfolio) and Jones.
Additional trades
Other stocks Gabelli established positions in during the quarter included Investment Technology Group Inc. (ITG, Financial), Alithya Group Inc. (ALYA, Financial), Esterline Technologies Corp. (ESL, Financial), Pacific Biosciences of California Inc. (PACB, Financial) and Arris International PLC (ARRS, Financial).
The guru’s $11.81 billion portfolio, which is composed of 779 holdings, is largely invested in the industrials and consumer cyclical sectors. According to its fact sheet, the Gabelli Asset Fund posted a -7.69% return in 2018. The S&P 500 index returned -6.59%.
As mentioned above, Gabelli will speak at the 2019 GuruFocus Value Conference in Omaha, Nebraska, joining gurus Chuck Royce (Trades, Portfolio) and Francisco GarcĂ Âa ParamĂ©s. The conference will be held at the DoubleTree by Hilton Hotel Omaha Downtown on May 2 and 3. To view the full list of speakers, get more information or register, click here.
Disclosure: No positions.
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