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Mario Gabelli Leans Out 2nd-Quarter Portfolio

GuruFocus.com
·7 mins read

Mario Gabelli (Trades, Portfolio), founder of GAMCO Investors, has revealed his second-quarter portfolio, in which he cut numerous positions and lightened several major holdings. Major reductions include Hertz Global Holdings Inc. (NYSE:HTZ), Sony Corp. (NYSE:SNE), Mondelez International Inc. (NASDAQ:MDLZ), American Express Co. (NYSE:AXP) and Republic Services Inc. (NYSE:RSG).


Gabelli currently manages a portfolio of 839 stocks, with 55 new holdings. The portfolio is valued at $8.79 billion and has a turnover rate of 2%. Gabelli focuses on investing in undervalued stocks that, backed by research, show the potential for growth.

Portfolio overview

Gabelli's top holdings include Sony, Aerojet Rocketdyne Holdings Inc. (NYSE:AJRD), GATX Corp. (NYSE:GATX), American Express and Herc Holdings Inc. (NYSE:HRI).

By weight, Gabelli's top invested sectors were industrials (30.43%), communication services (14.29%) and consumer cyclical (10.73%).

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Hertz

Gabelli's most impactful reduction was the sale of the majority of his Hertz shares. He sold 6.26 million shares, totalling a 82.84% reduction in the holding, during the second quarter. The shares traded at an average price of $3.26 during the quarter and GuruFocus estimates the total loss at 76.72% during the lifetime of the holding.

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Hertz operates an automotive vehicle rental service through the Hertz, Dollar, Thrifty and Firefly brands. The company offers cars, crossovers and light trucks for rent, rental of industrial and construction equipment and fleet-leasing and fleet-management services. The company operates a network of car rental locations and licenses its brands to associates and franchisees. The highest segment by revenue is the U.S. car rental unit.

On Aug. 14, Hertz was trading at $1.55 with a market cap of $242.13 million. According to the Peter Lynch chart, the stock has traditionally traded above its intrinsic value.

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GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rank of 5 out of 10. There are currently three severe warning signs issued for long-term debt, low interest coverage and declining revenue per share. The company's cash-to-debt ratio of 0.09 places it lower than 86.15% of the industry.

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Sony

During the second quarter, Gabelli also sold off 18.26% of his holding in Sony. Around 541,997 shares were sold at an average price of $64.81. Overall, the sale had an impact of -0.38% on the portfolio. GuruFocus estimates the total gain on the holding at 215.80%.

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Sony is a conglomerate with consumer electronics roots and various well-known brand names, such as Walkman in portable audio players, Vaio in PCs, Xperia in smartphones, Cybershot and Alpha in digital cameras and PlayStation in video game consoles. It currently has seven main business segments, operating electronic appliances, games, devices and semiconductors, entertainment content and financial services.

Aug. 14 saw Sony trading at $82.94 with a market cap of $101.31 billion. According to the Peter Lynch chart, the stock was trading below its intrinsic value over the last several years.

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GuruFocus gives the company a financial strength rating of 6 out of 10, a profitability rank of 4 out of 10 and a valuation rank of 2 out of 10. There are two severe warning signs issued for declining revenue per share and an Altman Z-Score of 0.98, placing it in the distress column with bankruptcy a possibility in the next two years. Cash flows and net income had been increasing steadily prior to this year.

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Mondelez International

The second quarter saw Gabelli reduce his holding of Mondelez International by 30.85% with the sale of 539,926 shares. The shares were trading at an average price of $51.34 during the quarter and GuruFocus estimates the total gain at 39.29%. The sale had an impact of -0.32% on the portfolio.

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Mondelez has operated as an independent organization since October 2012, following the split from the former Kraft Foods North American grocery business. The company is a leading player in the global snack arena with a presence in the biscuit, chocolate, gum and candy, beverage and cheese and grocery aisles. Mondelez's portfolio includes well-known brands like Oreo, Chips Ahoy, Halls, Trident and Cadbury, among others. The company derives almost 40% of revenue from developing markets, a similar level from Europe and the remainder from North America.

On Aug. 14, Mondelez International was trading at $55.89 with a market cap of $79.93 billion. The Peter Lynch chart suggests the stock is overvalued.

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GuruFocus gives the company a financial strength of 4 out of 10, a profitability rank of 6 out of 10 and a valuation rank of 2 out of 10. The company has one severe warning sign issued for declining revenue per share. Cash flows have remained steady over the last several years. The weighted average cost of capital is just outweighed by the return on invested capital.

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American Express

Gabelli reduced his holding of American Express with the sale of 248,248 shares. The sale represented a 17.11% reduction and the shares were trading at an average price of $91.97 during the quarter. GuruFocus estimates the total gain at 104.38%.

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American Express is a global financial institution, operating in about 130 countries, that provides consumers and businesses charge and credit card payment products. The company operates a highly profitable merchant payment network. Since 2018, the company has operated in three segments: global consumer services, global commercial services and global merchant and network services. In addition to payment products, the company's commercial business offers expense management tools, consulting services and business loans.

Aug. 14 saw American Express trading at $100.31 with a market cap of $80.77 billion. According to the Peter Lynch chart, the stock has fluctuated around its intrinsic value over the last several years.

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GuruFocus gives the company a financial strength rating of 3 out of 10, a profitability rank of 5 out of 10 and a valuation rank of 3 out of 10. There is one severe warning sign issued for poor financial strength. The company has a cash-to-debt ratio that beats 65.68% of the industry, but the equity-to-asset ratio of 0.11 falls well below the competition.

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Republic Services

Republic Services was also reduced by 20.34% during the second quarter. Around 280,603 shares were sold at an average price of $80.57. GuruFocus estimates the total gain at 85.71% and the sale had an impact of -0.25% on the portfolio.

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Republic Services ranks as the second- largest integrated provider of traditional solid waste services in the United States, operating roughly 195 active landfills and more than 200 transfer stations. The company serves residential, commercial and industrial end markets. It also runs a sizable recycling operation in North America.

On Aug. 14, the company was trading at $90.15 with a market cap of $28.72 billion. The Peter Lynch chart suggests the stock is trading above intrinsic value and is overvalued.

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GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 7 out of 10 and a valuation rank of 2 out of 10. One severe warning sign is issued for the issuance of long-term debt. The company has continued to issue debt over the last several years, resulting in a cash-to-debt ratio of 0.03. Operating cash flow has continually increased over the last several years as net income has been consistent in the last two years.

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Disclaimer: Author owns no stocks mentioned.

Read more here:

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This article first appeared on GuruFocus.