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Tiziano Frateschi
Tiziano Frateschi
Articles (2569)  | Author's Website |

Undervalued Stocks Among Mario Gabelli's Recent Buys

Acquisitions have wide margins of safety

September 02, 2015 | About:

Mario Gabelli (Trades, Portfolio) is the founder, chairman and CEO of Gabelli Asset Management Company Investors (GAMCO Investors) and at the end of the last quarter, his portfolio was composed of 834 stocks with a total value of $18.5 billion.

According to GuruFocus' All-In-One screener, the following are the companies he recently bought with a wide margin of safety.

During second quarter 2015, he increased his stake in Waddell & Reed Financial Inc.(WDR) by 4.75%, and the company looks undervalued at the current price of $37.02. The DCF calculator gives a fair value of $75.62 with a current margin of safety of 51%. GuruFocus users confirm almost the same evaluation, giving the company a fair value of $72.07, which was the average price after seven votes.

The company operates as a mutual fund and asset management firm. It provides investment management, investment product underwriting and distribution, and shareholder services administration to mutual funds and institutional and separately managed accounts.

The stock is trading with a P/E ratio of 10.69, which is higher than 55% of other companies in the Global Asset Management industry, which has an average P/E ratio of 12.70. The price has dropped 30% during the last 12 months, by 21% year to date and is now 31.69% below its 52-week high and 7.11% above its 52-week low.

WDR has a profitability and growth rating of 8/10 with good returns: ROE of 36.03%, ROA of 19.90% and ROC of 514.19%. Return on assets is outperforming the industry, ranking higher than 92% of the company’s competitors, which have an average return of 3.70%; even ROE is performing well, outperforming 94% of the industry, which has an average ratio of 6%.

In the last quarter due to an additional day and a higher effective fee rate during the current quarter, operating revenues rose by 2%, while operating income rose 6%. Also the company won two new accounts in the Institutional channel, which contributed more than $550 million to sales, resulting in net inflows of $200 million.

Chuck Royce (Trades, Portfolio) is the main shareholder with 2,086,590 shares, amounting to 2.48% of shares outstanding or 0.42% of total assets of his portfolio. The second one is Ken Fisher (Trades, Portfolio), who holds almost the same stake, 2.47% of outstanding shares, followed by Mario Gabelli (Trades, Portfolio), who holds 0.47% of outstanding shares.


During second quarter 2015, he increased by 11.59% his stake in Baxter International Inc.(BAX), and the company looks undervalued at the current price of $37.17. The DCF calculator gives a fair value of $61.96 with a current margin of safety of 40%. GuruFocus users give an even higher fair value, at $81.68, which is the average price after 14 votes.

The company is in health care, engaged in the development, manufacture and sale of products that save and sustain the lives of people with hemophilia, immune disorders, infectious diseases, kidney disease, trauma and other chronic and acute medical conditions.

The stock is trading with a P/E ratio of 9.32, higher than 95% of other companies in the Global Medical Instruments & Supplies industry, which has an average P/E ratio of 29. The price has dropped 4% during the last 12 months, 3% year to date and is now 10.80% below its 52-week high and 12.32% above its 52-week low.

BAX has a profitability and growth rating of 7/10 with positive returns: ROE of 27.0%, ROA of 8.27% and ROC of 19.68%. Return on equity is outperforming the industry, ranking higher than 77% of other companies, which have an average ratio of 2.43%.

In the second quarter for the fourth time, Baxter's BioPharma Solutions contract manufacturing business was recognized as Best Contract Manufacturer at the annual Vaccine Industry Excellence (ViE) Awards, held at the World Vaccine Congress in Washington, D.C.

Daniel Loeb (Trades, Portfolio) is the main shareholder of BAX with 52.5 million shares, amounting to 9.62% of shares outstanding or 17.20% of total assets of his equity portfolio. The second guru is Richard Pzena (Trades, Portfolio) who holds 0.92% of outstanding shares and Tweedy Browne (Trades, Portfolio) which holds 0.47% of outstanding shares.


During second quarter 2015, Gabelli bought 322,152 shares of Harris Corporation(HRS), and the company looks undervalued at the current price of $74.73. The DCF calculator gives a fair value of $111.24 with a current margin of safety of 33%. GuruFocus users give a fair value of $88.57, which is the average price after two votes.

The company together with its subsidiaries engages in communications and information technology, serving government and commercial markets in more than 125 countries. It operates in three segments: RF Communications, Integrated Network Solutions and Government Communications Systems.

The stock is trading with a P/E ratio of 15.14, higher than 63% of other companies in the Global Communication Equipment industry, which has an average P/E ratio of 21.2. The price has risen 9% during the last 12 months, 8% year to date and is now 8.54% below its 52-week high and 27.57% above its 52-week low.

HRS has a profitability and growth rating of 7/10 with good returns: ROE of 28.76%, ROA of 10.71% and ROC of 70.27%. All these returns are outperforming the industry, ranking higher than 89% of other companies. These results are even topping the performance of the recent company’s history.

Revenue in the fourth quarter of fiscal 2015 was $1.53 billion, compared with $1.33 billion in the prior year. Also during the quarter, Harris was awarded a 10-year (three-year base, seven option years), $98 million follow-on contract from the Federal Aviation Administration (FAA) for the Operational and Supportability Implementation System II (OASIS II)

Brian Rogers is the main shareholder with 3,889,500 shares, amounting to 3.73% of shares outstanding or 1.15% of total assets of his equity portfolio. The second shareholder is Jim Simons (Trades, Portfolio) who holds 0.61% of outstanding shares, and Joel Greenblatt (Trades, Portfolio) with 0.56%.


During second quarter 2015, he increased his stake by 2.61% in Global Sources Ltd.(GSOL) and the company looks undervalued at the current price of $8.13. The DCF calculator gives a fair value of $11.49 with a current margin of safety of 29%.

Global Sources Ltd. is a B2B media company that provides information and integrated marketing services, with a focus on the Greater China market. It facilitates international trade between buyers and suppliers by providing export marketing services and sourcing information. The company connects international buyers with suppliers in Asia.

The stock is trading with a P/E ratio of 10.11, higher than 83% of other companies in the Global Business Services industry, which has an average P/E ratio of 20. The price has risen by 13% during the last 12 months (by 29% year to date) and is now 8.75% below its 52-week high and 60.36% above its 52-week low.

GSOL has a profitability and growth rating of 8/10 with positive returns: ROE 18.66%, ROA of 10.09% and ROC of 64.90%. Return on assets is outperforming the industry, ranking higher than 83% of other companies that have an average ratio of 3.63%.

In the last quarter, adjusted EBITDA was $17.4 million, compared to $11.8 million for the second quarter of 2014. Also, it completed three important actions to return value to its shareholders and to focus on its core business.

Diamond Hill Capital (Trades, Portfolio) is the main hedge fund holding GSOL with 818,973 shares, amounting to 2.74% of shares outstanding or 0.04% of total assets of its portfolio, followed by Mario Gabelli (Trades, Portfolio) with 2.14% and Jim Simons (Trades, Portfolio) with 0.12%.


During second quarter 2015, he increased by 0.55% his stake in Ralph Lauren Corp(RL) and the company looks undervalued at the current price of $108. The DCF calculator gives a fair value of $140.26 with a current margin of safety of 23%. GuruFocus users confirm almost the same evaluation, and after 13 votes they put the company at a fair value of $149.59.

The company is engaged in the design, marketing and distribution of premium lifestyle products, including men's, women's and children's apparel, accessories, fragrances and home furnishings. It operates in three segments: Wholesale, Retail and Licensing.

The stock is trading with a P/E ratio of 15.96 that is ranked higher than 57% of other companies in the Global Apparel Manufacturing industry, which has an average P/E ratio of 19.30. The price has dropped by 35% during the last 12 months (by 39% year to date) and is now 40.86% below its 52-week high and 6.28% above its 52-week low.

Ralph Lauren has a profitability and growth rating of 7/10 with good returns: ROE of 15.27%, ROA of 9.73% and ROC of 33.43%. Return on assets is ranked higher than 79% of other competitors that have an average ratio of 3.68.

Steven Cohen (Trades, Portfolio) is the main shareholder holding RL with 316,300 shares, amounting to 0.37% of shares outstanding or 0.29% of total assets of his portfolio. The second guru is Jim Simons (Trades, Portfolio) who holds 0.22% of outstanding shares, and Ron Baron (Trades, Portfolio) with 0.14%.

Summary

All these companies are trading with a very wide margin of safety and good P/E ratios. All of them have positive and strong profitability, and the recent market correction can offer an even higher margin of safety in the near future.

Ticker

Margin of Safety

P/E

WDR

51%

10.69

BAX

40%

9.32

HRS

33%

15.14

GSOL

29%

10.11

RL

23%

15.96

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About the author:

Tiziano Frateschi
You can read about me on www.theextraincome.info, which gives suggestions on position trading.

Visit Tiziano Frateschi's Website


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