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Sydnee Gatewood
Sydnee Gatewood
Articles (3566) 

Mario Gabelli's Gabelli Value 25 Fund 4th-Quarter Shareholder Commentary

Discussion of markets and holdings

INVESTMENT SCORECARD

Sony Corp. (9%, +33%), was the largest contributor to fourth quarter and annual returns as its latest generation PlayStation 5 game console launched with great fanfare, and the company's sensor business stands to benefit from a new smartphone cycle and increased automotive production. Although it remained the largest detractor for the year, ViacomCBS (10%, +26%) gained significant ground in the fourth quarter, making it the second largest contributor. Like many media companies, ViacomCBS was hit hard in the first quarter by lower advertising revenue, a lack of sports programming, theater closures and the suspension of film and TV production, but rebounded as many of those revenue sources returned or appeared more likely to return in 2021. Similarly, Madison Square Garden Entertainment (2%, +53%) and Ryman Hospitality (1%, +84%) performed well as COVID-19 vaccines raised hopes for in-person sporting and conference attendance. Finally, in late December, long time holding Aerojet Rocketdyne (4%, +32%) agreed to an acquisition by Lockheed Martin for $56 per share in cash.

The two primary detractors during the fourth quarter were among the biggest winners for the year. Swedish Match (7%, -5%) and gold miner Newmont Mining (7%, -5%) declined as investors rotated to more cyclical industries.

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 percentage of net assets and their share prices stated in U.S. dollar equivalent terms are presented as of December 31, 2020.

Honeywell International Inc. (2.0% of net assets as of December 31, 2020) (NYSE:HON) (HON – $212.70 – NYSE) operates as a diversified technology company with highly engineered products, including turbine propulsion engines, auxiliary power units, aircraft brake pads, environmental control systems, engine controls, communications and navigation systems, sensors, building automation, catalysts and absorbents and process technology for the petrochemical and refining industries and warehouse automation equipment and software. One of the key drivers of HON's growth is acquisitions that increase the company's growth profile globally, creating both organic and inorganic opportunities.

Liberty Broadband's (2.4%) (NASDAQ:LBRDA) (LBRDA – $157.58 – NASDAQ) principal assets are a 25% interest in Charter Communications, the second largest cable company in the U.S., and General Communications, the leading cable and wireless provider in Alaska. Liberty Broadband is the product of decades of financial engineering by cable pioneer Dr. John Malone, who effectively controls the company. Charter, currently operated by former Cablevision executive Tom Rutledge, successfully integrated the acquisitions of Time Warner Cable and Bright House and is now capitalizing on its broadband infrastructure advantage during a time of increasing internet usage. Liberty's investment in Charter was held in two entities, Liberty Broadband and GCI Liberty (which itself also owned 24% of Liberty Broadband); the two entities merged in December 2020 in a long-anticipated transaction. This ownership rationalization should allow for accelerated share repurchases and an eventual combination with Charter.

Madison Square Garden Sports Co. (3.1%) (NYSE:MSGS) (MSGS – $ 184.10 – NYSE), owner of the New York Knicks basketball team and the New York Rangers hockey team, is one the few ways for the public to access the positive dynamics of sports franchises. The company's predecessor was originally spun-off from Cablevision in 2010 and subsequently separated into a regional sports networks as MSG Networks and then its venue and entertainment businesses via Madison Square Garden Entertainment. Although the company has been negatively impacted by a shortened season and lack of live fans due to COVID-19, the value of the teams has been growing along with the global popularity of basketball.

Sony Corp. (9.3%) (SNE) (SNE – $101.10 – NYSE) is a conglomerate based in Tokyo, Japan focused 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 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 the sole supplier of iPhone's image sensors. Sony's Electronics business remains a globally diversified and defensive cash cow, e.g. robust TV sales during COVID-19 pandemic. Sony has net cash on its balance sheet, enabling the company to manage through COVID-19 and increase its dividend return and introduce another major stock buy back. Online game usage has increased dramatically with stay-at-home restrictions, but businesses such as movies are impacted by production stopping and releases delayed.

Swedish Match AB (6.9%) (OSTO:SWMA) (SWMA – $77.52/SEK 637.80 – Stockholm Stock Exchange) produces tobacco products that include snus and snuff, chewing tobacco, cigars, and lights. The company has been benefiting from the growth of the smokeless tobacco market in both Scandinavia and the U.S., as public smoking bans and health concerns are driving consumers to seek alternative tobacco products to cigarettes. The company has a rapidly growing tobacco-free nicotine pouch product called ZYN that is growing rapidly in the U.S. and Scandinavia, and is driving growth in its mass market cigar business through its new natural leaf products. Driven by ZYN, we expect Swedish Match to continue to grow its smokeless business globally, and the company could be an attractive takeover candidate for a global tobacco company that wants to increase its presence in the smokeless segment.

Returns represent past performance and do not guarantee future results. Total returns and average annual returns reflect changes in share price, reinvestment of distributions, and are net of expenses. Investment returns and the principal value of an investment will fluctuate. When shares are redeemed, they may be worth more or less than their original cost. Current performance may be lower or higher than the performance data presented. Visit www.gabelli.com for performance information as of the most recent month end. Returns would have been lower had the Adviser not reimbursed certain expenses of the Fund. The Fund imposes a 2% redemption fee on shares sold or exchanged within seven days of purchase. Performance returns for periods of less than one year are not annualized. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The prospectuses contain information about these and other matters and should be read carefully before investing. To obtain a prospectus, please visit our website at www.gabelli.com. The Class A Share NAVs are used to calculate performance for the period prior to the issuance of Class I Shares on January 11, 2008. The actual performance of the Class I Shares would have been higher due to lower expenses associated with this class of shares. The S&P 500 Index is a market capitalization weighted index of 500 large capitalization stocks commonly used to represent the U.S. equity market. Dividends are considered reinvested.


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