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Yamil Berard
Yamil Berard
Articles (133) 

Mario Gabelli's Top Buys of the 1st Quarter

An insurance company, a paper maker and an IT solutions provider for Homeland Security were among the top buys

Mario Gabelli (Trades, Portfolio)’s GAMCO Investors kicked off three major positions in the first quarter of the year.

GAMCO started a position in Bermuda-based insurance company XL Group Ltd. (NYSE:XL). The company is trying to get back up on its feet after taking a direct hit from catastrophic storms that battered the U.S. Gulf Coast last year.

Gabelli and his firm also began a position in U.S. Homeland Security partner CSRA Inc. (NYSE:CSRA). The Virginia-based IT provider’s client list includes government, health care and military and defense entities. 

KapStone Paper and Packaging Corp. (NYSE:KS) represented the guru’s third-largest new position. The stock of the paper company is kissing its 52-week high of $35 per share. It has seen a steady increase in revenues in recent years.

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The guru also exited three holdings, Snyder’s-Lance Inc. (NASDAQ:LNCE), Scripps Network Interactive (NASDAQ:SNI) and Exactech Inc. (NASDAQ:EXAC).

Gabelli’s legendary investment firm holds 816 stocks in a portfolio valued at $14.8 billion. The majority of the portfolio is made up industrials and consumer cyclical stocks. Almost 20% is made up of financial services, consumer defensive, technology and basic materials. Just under 15% is made up of communication services, health care, utilities, energy and real estate.

The fund’s top five positions are in Ryman Hospitality Properties Inc. (RHP), Bank of New York Mellon Corp. (NYSE:BK), Sony Corp. (NYSE:SNE), Crane Co. (NYSE:CR) and Herc Holdings Inc. (NYSE:HRI).

XL Group Ltd.

The guru purchased 272,000 shares of the company for an average price of under $45 a share. The holding sits in 0.1% of the portfolio and has produced a 24% estimated gain. On Thursday afternoon, the stock was at $55 a share, down .08%. It is up 62% year-to-date.

XL offers commercial and specialty insurance for risks, including satellites and horses. It also reinsures catastrophe, marine and other risks. Other divisions of the company also guarantee investment contracts but officials say the company is exiting some areas because of recent struggles.

Analysts are forecasting revenue of $12.8 billion in December 2020 and earnings per share of $4.12, an increase from $3.50 per share in December 2018.

The company reported a net loss in earnings per share of -$2.24 in the trailing 12 months of the year.

The insurance provider has a forward price-earnings ratio of 14.68, which is lower than its competitors in the sector. It also has a price-book ratio of 1.47 and a price-sales ratio of 1.27. Both ratios are also lower than its competitors.

The company had a problematic 2017 as a result of one of the worst hurricane and storms seasons affecting U.S. coastal areas. As a result, it has declining net margins and return on equity as well as return on assets.

A number of gurus have reduced their holdings, such as Donald Smith (Trades, Portfolio), T Rowe Price, Diamond Hill Capital (Trades, Portfolio) and Richard Pzena (Trades, Portfolio). Gurus who still hold the company include Scott Black, Pioneer Investments (Trades, Portfolio) and Ray Dalio (Trades, Portfolio).

In the last five years, the company has seen a 13.9% growth in revenue per share. In the last 12 months, it has seen 10% growth. Revenue in 2017 stood at $11 billion compared to $7 billion in 2011.

It reported a loss of $560 million in net income, compared to the prior year’s $441 million. In 2004, the company reported net income of $1.78 billion.

It has more than 7,400 employees, which is more than double that of just five years ago.

GuruFocus ranks it 4 out of 10 in financial strength and 5 of 10 in profitability and growth.

It has a market cap of $14 billion.

CSRA Inc.

Gabelli’s firm holds more than 270,000 shares of the company. The shares were purchased at an average price of $36.68 a share. The shares sit in about 0.08% of the portfolio.

The investment has made an estimated gain of 12%. Gabelli last owned shares in 2015. The stock has jumped 35% year to date and stood at just over $41 a share in Thursday afternoon trading.

The Defense & Intelligence segment provides services to branches of the Armed Forces and the Civil segment provides services to various federal agencies. It has more than 100 contract vehicles and over 1,000 projects.

Analysts are predicting the company will hit revenue of $5.4 billion in March 2019. The Street is predicting an earnings per share increase of 4.64%. In revenue, the company has reported $5 billion in the trailing 12 months. Its earnings per share stand at $2.29 per share. In profits, the company reported $37 million last spring. It reported free cash flow of $14 million last year. It has long-term debt of $2.5 billion.

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The company has a price-earnings ratio of 18, which is higher than the majority of its competitors in the sector. It has a price-book ratio of 10.81, which is lower than 85% of companies in the global technology services industry, its sector.

It also has a price-sales ratio of 1.34, which is overwhelmingly higher than competitors in the same sector.

Gurus who have purchased its shares include Dodge & Cox, David Dreman (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio). The gurus all hold shares currently.

GuruFocus ranks it 4 out of 10 in financial strength and 5 of 10 in profitability and growth.

It has a market cap of $6.76 billion.

Kapstone Paper and Packaging Corp.

KapStone Paper And Packaging Corp. produces container board, corrugated products and specialty paper. The company operates in two segments, namely Paper and Packaging segment and Distribution segment.

Gabelli bought almost 170,000 shares for an average price of just under $32 a share. He has reported an estimated gain on the investment since he began buying shares. It sits in 0.04% portfolio space.

On Thursday afternoon, it was trading for $34.35, up 0.41%. It has seen its stock jump 61% in the last 12 months of the year. In February, it soared to over $34 a share from under $26 a share.

The company also has seen steady increases in revenue over the last five years, and has a high Piotroski-F score, signaling healthy operations.

Gurus who have purchased shares include Joel Greenblatt, who initiated a position in the third quarter of last year. Others include Leucadia National (Trades, Portfolio).

It has a price-earnings ratio of 12.55, which is higher than its competitors. It also has a price-book ratio of 2.85, which is lower than its competitors, and a price-sales ratio of 1.10, which is about average.

The company’s return on equity and return on assets is much higher than its competitors, reflecting its investment potential.

However, the company has a extensive debt load and continues to issue new debt. In addition, gross margins have been on a decline in recent years.

Revenues for the company were reported at $3.3 billion. Analysts are expecting a decline to $3.3 billion in 2020, but earnings per share to increase to $2.90, which is a growth rate of 5%

GuruFocus ranks it 5 out of 10 in financial strength and 9 of 10 in profitability and growth.

The company has a market cap of $3.36 billion.


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