Private-market value. It's a simple concept most investors
Yet it's an approach that has catapultedfund manager Mario
Gabelli into the billionaires' club. He's made big profits at his
firm, GAMCO Investors, which now manages more than $40 billion in
What is private-market value?
Private-market value, or PMV, is the estimation of what a company
would be worth if it were private. Gabelli keeps a keen eye on
themerger andacquisition (M&A) trends in many industries,
keeping him updated on what any still-public company might
receive in abuyout offer . He's not looking for these companies
to be acquired, per se, but instead correctlynotes that themarket
will eventually reward these temporarily underpricedstocks .
Gabelli even suggests that Benjamin Graham, David Dodd andWarren
Buffett implicitly endorse this approach.
But how has Gabelli fared using the PMV approach?
GAMCO's investors have earned an average of 11.7% ayear (after
fees) over the past 25 years, beating the S&P 500's 9.7%
annualizedgain , according to GuruFocus.com. That may not seem
like much at first blush, but thanks to the power ofcompounding ,
that adds up to a 50% gain on a cumulativebasis compared with
With that in mind, it pays to look at what Gabelli and his team
are buying. In the past few weeks, GAMCO has announced new or
extended purchases of the following companies:
Marine Products (
When the U.S.economy was free-falling in 2008, consumers stopped
buying expensive toys.Sales of recreational vehicles (RVs) and
boats plunged. As investors fled these stocks, Gabelli waded in,
buying 963,000shares of this boat builder. And he's been (mostly)
buying ever since. With a fresh purchase of 123,000 shares in the
first quarter of 2013, GAMCO now owns 1.4 million shares of
Gabelli's timing was a bit premature, as few consumers bought RVs
and boats in the first few years after therecession . Yet this
industry is finally springing to life. Marine Products recently
posted a 17% gain in first-quarter sales -- and if history is any
guide, it's on the cusp of a sustained upturn.
In 2004 through 2007, Marine Products always generated at least
$244 million inrevenue (andearnings per share (
) was typically above 50 cents). That sales figure slumped to
$106 million in 2001, rebounded to $148 million in 2004 and could
hit $175 million by next year, according to consensus forecasts.
Gabelli is likely adding to this position now in anticipation of
an eventual sales rebound north of $200 million within a few
Ferro Corp. (
GAMCO made a bold move in the fourth quarter of 2008, buying 6.7
million shares of this specialty materials provider at an average
price of $11. Shares eventually plunged below $5 as the global
economic slowdown really took effect. Undeterred, GAMCO has been
mostly deepening its hold on thisstock , acquiring 1.4 million
more shares in just the past quarter, bringing its total holding
to 8.4 million shares.
Even as GAMCO has taken a passive interest in Ferro,activist
investors have been pressuring the company to consider
For example, they would like the company to meet with
A. Schulman (Nasdaq: SHLM)
, which had offered $6.50 a share to buy the company and hints of
a sweeter offer to come if Ferro engages in talks. GAMCO probably
thinks a higher offer is warranted, considering its $8 a share
average basis price in all its purchases, which is roughly 15%
above the current share price.
Superior Industries International (
GAMCO was also an early buyer of this beleaguered auto parts
supplier in 2008, when its shares stumbled along with the entire
sector. But this was no "bear-market special."
Shares have been on the upswing in recentquarters , and GAMCO is
still buying. In fact, Gabelli has acquired 900,000 more shares
during the past five quarters, doubling the size of his stake in
this provider of lightweight aluminum wheels for cars and light
The rebound in the auto industry appears to have caught
Superior off guard. The company's low-cost plants in Mexico are
turning away business as they are already operating at capacity.
As a result, management recently announced plans to expand those
plants to handle higher production volumes and build a completely
new plant in the Mexican state of Chihuahua, though such efforts
will likely take several quarters to complete.
A keycatalyst for this stock: Superior has almost $200 million
incash and nodebt , and after the plantinvestments have been
completed, management suggests that a share buyback program may
be announced, augmenting the currentdividend , which already
Risks to Consider:
GAMCO appears to favor economically sensitive business
models, which carry a higher degree of risk should the economy
Action to Take -->
These picks aren't especially sexy, but they reflect a sense that
theirbases of assets are beingundervalued by the market. GAMCO
has held some of these stocks for a number of years, which
implies a farsighted view on portfoliogains . The fact that
shares are still being bought, even after they have moved up from
the original purchase price levels, tells you they still possess
a PMV greater than their currentmarket value .
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