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Billionaire Investor Mario Gabelli talks his investment strategy amid the coronavirus outbreak

Billionaire Investor Mario Gabelli joined Yahoo Finance's Myles Udland, Andy Serwer, Dan Roberts, and Melody Hahm to discuss the areas of the market he's watching and his investment strategy amid the coronavirus crisis.

Video Transcript

MYLES UDLAND: We are joined now by Mario Gabelli. He is the Chairman and CEO of GAMCO Investors. Mario, great to talk to you. Thanks for joining today. Let's just start right now with how you are thinking about this environment, how you are trying to sift through all the mess we've seen in the market and the uncertainty of the economy to find attractive or interesting areas.

MARIO GABELLI: Yeah that's a great question, great way to start. You know, back in February I was out in Las Vegas on the middle of, last week of February. And at that time, everybody was worried about the supply-- but we-- shortages and supply chain disruptions that we had. Obviously, what happened in South Korea and Italy. And then we became very aware that it was the consumer that was going to get hit.

And we have a health challenge, and the markets, in the last week of March, had all the stress testing you wanted, all the algos, ETFs. And you just had somebody on on the oil patch, and obviously negative oil was just an example of what happens when you have leveraged ETF's that people had to unwind. And lots of interesting disruptions from mechanical trading.

But the Fed went into what I call hypersonic. Like a mach five, as opposed to a mach one, in terms of putting money in the system. Fiscal policy is catching up. We've got an infrastructure bill likely somewhere in the next horizon. And so you have a lot of pluses. Right now, you're going through the earnings season. I listened to several this morning.

And obviously, lots of earnings releases in the market for some stocks, like Belmont, went up and some had some challenges. Independent of that, we get past the second quarter and then we start thinking about, is there going to be a second wave of COVID-19. But independent of that, what happens in the first half of 2021?

So we have always done what we did in the '60s, when I covered conglomerates as an institutional research analyst. What are the leading indicators? What are the coincidental? What are lagging? Which stocks will do well?

At the same time, we have to be realistic. 100 years ago, we had an Industrial Revolution in this country, and today we're seeing the dynamics of a digital revolution. What is going to change? When I order online, am I going to stay with a brand? What's happening to brand identification? How do-- if the consumer spends 2% shift from eating out to eating at home, is this permanent? They stocking their shelves or the pantry, or are they going to start?

And so what companies benefit from that. So those are the dots that we're looking at. And from my point of view, also following cyclical companies, how bad is bad? I've gone through like five auto cycles. Maybe six. How long will it last? And then how good is good and who is going to be the beneficiary of bringing a artificial intelligence, bringing the EB, being better, and shifting everything? Who's going to be the [INAUDIBLE], the entity that goes into the Amazon distribution centers and automates it, and how are they going to put in battery-powered vehicles?

And then we obviously have what I call the bottle stocks. BOTL have had a challenger. The banks, with the stress testing. The oil patch you talked about earlier, no need to echo on that. That's a great beneficiary for consumers in China. Great beneficiary of the US, but bankruptcies will happen to the producers. And we'll work our way through. Then travel and leisure.

Do I want to go back to Las Vegas? When will they open? How will they space the dynamics there? What happens to convention center hotels? What happens to the whole infrastructure? Will I get into an Uber without, you know, worrying about who was there before? Will I do Airbnb?

So you do have lots of the dots.

ANDY SERWER: Right.

MARIO GABELLI: And that's what we look at every day.

ANDY SERWER: Hey, Mario. Andy Serwer here. Sorry to jump in. I just want to ask you about streaming, entertainment, TV, Hollywood, because you are the media maestro investor of all time. And here's the thing. You know, we were talking about peak content just a couple of months ago. And now, are we going to be looking at trough content going into 2020-21 because there's no production going on. Are we going to run out of content?

MARIO GABELLI: Well you have a lot of stuff that was put in the pipeline, like classic films that would have been enormous box office successes. You know, Tom Cruise had one. Some of the Disney movies, they've all been pushed forward. I just talked to a movie theater operator today, and you know, how are they going to position themselves? They have an ability to space everyone six seats apart. And how much of that is going to come back?

In China, which is 40-- the US box office, Andy, was $42 billion last year. $10 billion in China. They just shut the theaters down. Now that's going to come back, slowly. I mean, we have an office in Shanghai, we have an office in Hong Kong, and they give us an update of traffic patterns and what people are doing.

So there will be a gap in creative content. Netflix mentioned that. Anybody reading the Hollywood Reporter, Variety knows that, and that's a reality of the dynamics that we're facing. Independent of that, who's got the library, and who's got some content, and how do they keep it fresh? Will Sony, which has a great music, what are they going to do with their film entertainment business?

Will they now look to, find Tencent to do something with? Will they do something with Alibaba? Will they do something with the companies in China? Or will they do something with the companies up in Seattle? Will Amazon say, hey, listen, let's do a deal where we put it together with Paramount?

You saw that in streaming, in the music world today. John Malone and Greg Maffei put together a transaction, which is classic you know, quilting together their Formula One entity and shifting Live Nation over to Liberty Sirius. Liberty Sirius is also-- has great care-- own Liberty-- they own Sirius. They're trying to figure out what they do with Pandora.

So streaming music is up sharply. That helps companies like Vivendi, where they sold 10% of it to Tencent for a very interesting market cap. Will Sony do something like that?

Independent of that, clearly there will be those that structurally change. Will direct to the consumer of a theater bypass the window and not go to the theaters? Or will they have to open box office? Those are the questions we will ask. On the advertising front for television, if you're a TV station, the local, 70% or 80% of your revenues were derived from local.

No car sales? At 40% to 50% or 60% down, what we thought with Bloomberg and Steyer would carry through the year, I still think you'll have significant political in the second half of the year. And that's a plus. I think car sales have come, not roaring back, but come back. And they've start advertising again.

So the local advertisers, unfortunately, they are cash to-- the debt-to-EBITDA has gone for 4 times to 8 times, since that's high leverage, but they've got huge cash flow coming up in the next six months. So we're trying to figure out which ones we want to own, which ones we'll consolidate, which will be part of a consolidation process.

And the same thing with regards to Spectrum. The FCC is going to have a new Spectrum auction with the T-Mobile Sprint deal being done. What does that mean? So those are the kind of dots in the environment of the film entertainment. Then you get some strange things. You've got the WWE, World Wide Wrestling was considered essential in Florida, so they're opening up. Tonight you've got the football draft. That's going to be quite entertaining.

Then you've got Tiger Woods doing a foursome of golf carts apart. And so we've got to bring it back. So one of the stocks I like is baseball. I still like the Atlanta Braves. The stock is selling at $17.18. And with a 60 million shares, you're talking about a billion market cap, a real estate's worth of debt. And can I buy a baseball team? Yeah I want you to buy it for your granddaughter. I want you to buy it for a grandson. You can buy a Madison Square Garden, which went through financial engineering today.

MYLES UDLAND: Yeah. Well, Mario, let's talk a little bit about, let's talk a little bit about MSU. Last time you and I spoke, a year ago, I think, I outlined some MSG case. You told me I had it all backwards. We were waiting for Zion Williamson to arrive in town. When you look at a company like that, and some of these live assets, you know, where you're looking at a building, how can companies try to outline what the next 18 months might look like? I mean, when are the fans going to be in the building, when are you gonna be able to have a concert? These sorts of things.

MARIO GABELLI: Well, a concert is something different. I think that there is a great deal of interest in tribal relationships, sports in particular. You know, the concert streaming does help those that don't copyright and own content. Even with the modern music act, the helping out the way the fees are calculated and collected. But basically, you go back to question, will the baseball season start? Will they have an opening day in one location? Will everybody play? Will basketball play in Phoenix, as they're talking about and have all the teams there, all the players, and have a finish? Work in progress.

Goes back to one giant step, Andy. Testing. OK? How do we ramp up testing? How do we increase the capacity for a second wave? How do we prepare? Every drug company we talk about, in terms of testing, has gone up 20%, 30%, 40%. One [INAUDIBLE] has gone from like, 60 to 120-- 125.

The digital world is-- Teledoc-- has gone from 75 to 170. So you have a lot of these dynamics occurring, and you know, what price do I want to pay and what valuations do I want to get. And even this morning, you had the BlackRock talk about financial engineering, and how they're seeing significant opportunities. And then you'll have structural changes. JC Penney's gone bust. Lord and Taylor, Neiman Marcus, and what happens to shopping centers? What happens to commercial buildings?

MELODY HAHM: Yeah, Melody Hahm here. When you think about the leadership that you're hearing from as you tune into these earnings calls, with so much murky guidance ahead, we've seen a lot of crisis-management leadership, right? Whether it's the Bob Iger's of the world choosing to come back. We saw that New York Times piece on Bezos really stepping back up to that CEO role, and living into that title. What leaders are you really looking towards, and effective leadership strategies?

MARIO GABELLI: Well that's totally different. I was down in Florida visiting with Nextera Energy. They're clearly one of the leaders through an entity that I like called, the National Energy Partners, NEP, which is their play on wind and solar. As an example, Madison Gas and Electric has a wind farm going up. Google's taking their wind because they are still sensitive to climate change.

And as a result of that, which companies have that kind of a skill set? Offshore wind, offshore solar, battery technology for storage, and obviously transmission. And how do we protect transmission from cyber security? Those are still the dots that we connect.

And so that's why I like Avangrid at $44, $45, it's $310 billion shares, of which $250 million are owned by Iberdrola, which is one of the leaders on the global basis. And then in terms of leadership, Valmont, as an example-- a couple of you wouldn't know much-- but they're in a variety of businesses. They gave you the dots.

So analysts can do and connect. They don't want earnings guidance. I want the dots. How much is CapEx, what's your effective tax rate, what's your cash tax rate, what's going on. And then we worry about next year when somebody has to pay the bills, and the Fed holds off from putting incremental money into what happens to T-bills, what happens to commercial paper, what happens to money markets, and financing.

MYLES UDLAND: All right. Mario Gabelli, always great to get your thoughts. Mario Gabelli, of course, the Chairman and CEO of GAMCO Investors. Thank you so much for taking the time today. Hopefully we can talk to you soon.

MARIO GABELLI: I've got a laundry list of stocks we're buying, nibbling at. Take care.