Mario Gabelli (Trades, Portfolio), one of our speakers at this year's Value Conference, disclosed last week his top six new buys for the second quarter were IAA Inc. (NYSE:IAA), Clear Channel Outdoor Holdings Inc. (NYSE:CCO), Allstate Corp. (NYSE:ALL), Invitation Homes Inc. (NYSE:INVH), Amber Road Inc. (NYSE:AMBR) and Array Biopharma Inc. (NASDAQ:ARRY). However, his top buy in terms of portfolio impact is an increased bet on Red Hat Inc. (NYSE:RHT), a holding of Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway Inc. (NYSE:BRK.A) (BRK.B).
Gabelli graduated summa cum laude in 1965 from Fordham University's College of Business Administration and earned an MBA from Columbia University Graduate School of Business. The GAMCO Investors Inc. (NYSE:GBL) CEO seeks undervalued companies that have a catalyst.
As of quarter-end, the $13.16 billion equity portfolio contains 907 stocks; of which 122 represent new holdings. The top sectors in terms of portfolio weight are industrials, consumer discretionary and financial services.
Guru lists several key market drivers for second half of the year
Gabelli said in a CNBC Halftime Report interview last week that key market drivers for the remainder of the year include geopolitical events between the U.S., Beijing and Britain.
The ongoing U.S.-China trade war escalated over the weekend: China retaliated to President Trump's 10% tariff threat on over $300 billion worth of Chinese imports by devaluing the yuan to 7.05 per dollar, the lowest level in 11 years. The U.S. stock markets sank on the news: Despite trading at an intraday low of 25,523.38, down 1,697.97 points from last Monday's close of 27,221.35, the Dow Jones Industrial Average closed at 25,717.74, down 767.27 points from last Friday's close of 26,485.01. Top Berkshire holding Apple Inc. (NASDAQ:AAPL) sank by $10.68 per share, a 5.23% drop from the previous close of $204.02.
Gabelli added 114,725 shares of Red Hat, increasing the position 72.5% and his equity portfolio 0.16%. Although shares averaged $184.50 during the June quarter, the stock stopped trading on July 9 due to the merger with International Business Machines Corp. (NYSE:IBM).
As as standalone company, the Raleigh, North Carolina-based company provided open-source Linux software operating systems, middleware, storage, virtualization and management tools. GuruFocus ranks Red Hat's profitability 9 out of 10 on several positive signs, which include expanding profit margins and a return on equity that outperforms 86.11% of global competitors. Additionally, Red Hat's business predictability ranks five stars out of five on strong and consistent revenue and earnings growth over the past 10 years.
Buffett's conglomerate has not released its June-quarter portfolio as the deadline is 45 days after the quarter ends. As of the March quarter, Berkshire owns 5,110,471 shares of Red Hat.
Gabelli purchased 456,738 shares of IAA, giving the holding 0.13% weight in the equity portfolio. Shares averaged $38.68 during the quarter.
On June 14, KAR Action Services Inc. (KAR) announced the U.S. Securities and Exchange Commission declared IAA's registration statement on Form 10 effective. While shares of IAA started trading on the New York Stock Exchange on June 17 on a when-issued basis, the stock did not begin trading under the traditional way until June 28.
According to GuruFocus data, IAA's operating margin of 21.82% outperforms 95.20% of global companies in the autos industry group.
Clear Channel Outdoor Holdings
Gabelli purchased 2,714,852 shares of Clear Channel Outdoor Holdings, giving the stake 0.10% weight in the equity portfolio. Shares averaged $4.79 during the quarter.
The San Antonio, Texas-based company provides advertising opportunities through billboards, street furniture displays, transit displays and other out-of-home advertising displays for its clients. GuruFocus ranks the company's financial strength 3 out of 10 on several weak signs, which include interest coverage ratios that underperform 93.58% of global competitors. Despite this, Clear Channel's operating margin is outperforming 64.13% of global advertising companies.
Gabelli purchased 75,500 shares of Allstate, giving the position 0.06% equity portfolio weight. Shares averaged $97.67 during the quarter.
The Northbrook, Illinois-based company offers various property-casualty insurance products, including personal auto insurance, homeowners insurance and life insurance. GuruFocus ranks the company's financial strength 4 out of 10: Although the company has a safe Beneish M-score of -2.61, Allstate's equity-to-asset ratio of 0.21 underperforms 63.56% of global competitors while its cash-to-debt ratio of 0.09 underperforms 93.97% of global competitors.
Gabelli purchased 253,198 shares of Invitation Homes, giving the holding 0.05% weight in the equity portfolio. Shares averaged $25.46 during the quarter.
The Dallas-based real estate investment trust owns and operates single-family homes for lease in the U.S. GuruFocus ranks Invitation Homes' profitability 6 out of 10: Although the three-year earnings per share growth rate of 69.50% outperforms 93.58% of global REITs, the Dallas-based company's profit margins and returns are underperforming over 80% of global competitors.
Gabelli purchased 357,900 shares of Amber Road, giving the position 0.04% weight in the equity portfolio. Shares averaged $11.21 during the quarter.
The East Rutherford, New Jersey-based company provides cloud-based global trade management solutions. GuruFocus ranks Amber Road's financial strength 4 out of 10: Although the company has a solid Piotroski F-score of 5, its debt ratios are underperforming approximately 85% of global competitors. Additionally, the company's Altman Z-score of 0.82 suggests possible financial distress.
Gabelli purchased 117,708 shares of Array Biopharma, giving the holding 0.04% weight in the equity portfolio. Shares averaged $27.97 during the quarter.
The Boulder, Colorado-based biotech company discovers, develops and commercializes targeted, small molecule drugs to treat cancer patients. According to GuruFocus data, Array Biopharma's cash-to-debt ratio of 3.15 underperforms 64.13% of global competitors while its debt-to-equity ratio of 0.45 underperforms 69.60% of global competitors.
Disclosure: No positions.
Read more here:
- Matthews Pacific Tiger Fund's Top 5 Buys of the 2nd Quarter
- Matthews China Fund's Top 5 Buys of the 2nd Quarter
- David Nadel's Top 5 Buys of the 2nd Quarter
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This article first appeared on GuruFocus.