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Sydnee Gatewood
Sydnee Gatewood
Articles (3160) 

Mario Gabelli's Gabelli Value 25 Fund 3rd-Quarter Shareholder Commentary

Discussion of markets and holdings

INVESTMENT SCORECARD

The largest contributor to the third quarter performance was ViacomCBS (9.0% of net assets as of September 30, 2020) (+19%) which benefited from a recovery in advertising, progress in combining its legacy CBS and Viacom businesses and traction in its direct-to-consumer efforts. Stockholm-based smokeless tobacco producer Swedish Match (8.3%) (+16%) was another top contributor, largely due to continued sales growth and expanding distribution for its tobacco-free nicotine pouch ZYN. Finally, Navistar (2.0%) rose as TRATON, Volkswagen's truck manufacturing unit raised its bid for the company to $43.

Detractors from performance included Bank of New York Mellon (2.5%) (-11%) which has been hurt by low rates and a flat yield curve. DISH (1.6%) (-16%) declined after reporting strong results but not the previously promised financial details on its planned wireless build. DISH also added to its spectrum portfolio (and debt load) in a September FCC auction. A final detractor was Crane (1.4%) (-15%), which is experiencing softness in its aerospace business due to curtailed travel and in its vending business, with office and school populations limited.

LET'S TALK STOCKS

The following are stock specifics on selected holdings of our Fund. Favorable earnings prospects do not necessarily translate into higher stock prices, but they do express a positive trend that we believe will develop over time. Individual securities mentioned are not necessarily representative of the entire portfolio. For the following holdings, the share prices are listed first in United States dollars (USD) and second in the local currency, where applicable, and are presented as of September 30, 2020.

American Express Co. (NYSE:AXP) (4.1% of net assets as of September 30, 2020) (AXP — $100.25 — NYSE) is the largest closed loop credit card company in the world. The company operates its eponymous premiere branded payment network and lends to its largely affluent customer base. As of June 2020, American Express had 114 million cards in force and nearly $92 billion in loans, while its customers charged $1.2 trillion of spending on their cards in 2019. The company's strong consumer brand has allowed American Express to enter the deposit gathering market as an alternate source of funding, while the company's affluent customers have picked up spending. Longer term, American Express should capitalize on its higher spending customer base and continue to expand into other payment related businesses, such as corporate purchasing, while also growing in emerging markets. Similarly, the company is looking at the growing success of social media as an opportunity to expand its product base and payment options.

Comcast Corp. (NASDAQ:CMCSA) (2.2%) (CMCSA — $46.26 — NYSE), is a broadband and television provider in the U.S., U.K., Italy, and Germany. CMCSA is also a leading media company through its ownership of NBCUniversal. Comcast launched Peacock, a new streaming service (with ad-supported tiers) in July. The firm is a strong free cash flow generator and its valuation is attractive, at 8x 2021 projected EBITDA.

Newmont Corp. (NYSE:NEM) (8.3%) (NEM — $63.45 — NYSE) based in Denver, Colorado, is the largest gold mining company in the world. Founded in 1921 and publicly traded since 1925, NEM is the only gold company included in the S&P 500 Index and Fortune 500. Newmont consummated a $10 billion stock merger with Goldcorp in April of 2019 in which it acquired eight high quality gold mines in the Americas. We expect Newmont to produce approximately 6.5 million ounces of gold in 2020 at all-in sustaining costs of $950 per ounce. Post its acquisition of Goldcorp, Newmont is working towards turning around Goldcorp's former underperforming assets and establishing a large, low cost, well capitalized gold mining business which generates free cash flow at almost any gold price and has the capacity to grow production organically. As such, the company is in the process of cementing its position as the premier gold investment vehicle in the world.

Sony Corp. (NYSE:SNE) (8.4%) (SNE — $76.75 — NYSE) is a conglomerate based in Tokyo, Japan focusing on direct-to-consumer entertainment products supported by the company's technology. Sony is the #1 integrated global gaming company, and we expect the gaming segment to contribute nearly half of EBITDA (ex-financial) in 2020 following the much anticipated launch of the PlayStation 5 in the 2020 holiday season. Sony Music Recording commands #2 and Music Publishing #1 global share and is a hidden asset as music values have increased with the success of streaming. Sony also operates the Sony/Columbia film studio, which is well positioned in the over the top (OTT) streaming wars as a major supplier of high quality library shows like Seinfeld. Sony is an image sensor leader with over 50% global revenue share. We expect strong 5G iPhone 12 upgrade cycle will benefit Sony as a sole supplier of iPhone's image sensors. Sony's Electronics business remains a globally diversified and defensive cash cow, e.g., robust TV sales even during COVID-19 pandemic. Sony has net cash on its balance sheet which enables the company to manage through COVID-19 and increase its dividend return and introduce another major stock buyback. Online game usage has increased dramatically with stay-at-home restrictions, but business such as movies are impacted by production stoppages and delayed releases.

ViacomCBS (NASDAQ:VIAC) (9.0%) (VIA — $30.29 — NASDAQ) is the product of the December 2019 recombination of Viacom and CBS, two Sumner Redstone controlled companies. ViacomCBS is a globally-scaled content company with networks including CBS, Showtime, Nickelodeon, MTV, Comedy Central, VH1, BET, thirty television stations, the Simon & Schuster publishing house and the Paramount movie studio. The companies separated in 2005, but changes in the media landscape have put a premium on global scale. Together ViacomCBS should be better able to navigate shifts in consumer behavior while generating significant cost savings and enhancing revenue growth.

Note: The views expressed in this Shareholder Commentary reflect those of the Portfolio Managers only through the end of the period stated in this Shareholder Commentary. The Portfolio Managers' views are subject to change at any time based on market and other conditions. The information in this Portfolio Managers' Shareholder Commentary represents the opinions of the individual Portfolio Managers and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Views expressed are those of the Portfolio Managers and may differ from those of other portfolio managers or of the Firm as a whole. This Shareholder Commentary does not constitute an offer of any transaction in any securities. Any recommendation contained herein may not be suitable for all investors. Information contained in this Shareholder Commentary has been obtained from sources we believe to be reliable, but cannot be guaranteed.

About the author:

Sydnee Gatewood
I am the editorial director at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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