When most investors pulled in their horns in early September after Saddam Hussein's invasion of Kuwait, Mario Gabelli exuded optimism. He bought stocks, even as the Dow plunged some 400 points, to 2400. Sure enough, his persistence paid off. The Dow is now back within shooting distance of 3000. And Gabelli is as bullish as ever.
"I don't care if many issues have gone up 30% to 40%. We aren't backing off in buying stocks that we think are still great bargains," says Gabelli, who manages more than $6 billion in five mutual funds and several partnerships.
What's fueling his optimism? Apart from the waning recession and declining interest rates, America has won worldwide respect as a superpower. And that, he believes, will soon translate into a victory in resolving the nation's domestic problems. Because of President Bush's high popularity rating, Gabelli thinks he'll be able to make headway on the budget gap and in designing a much-needed energy policy.
Gabelli is also confident that Bush will vigorously push the Federal Reserve to cut interest rates and ensure a strong recovery, "perhaps for another prolonged run." Gabelli's strategy: buy industrial companies and those with niche markets that will benefit from a rise in consumer demand.
SPY SHIPS. Among his six top picks is Trinity Industries, the nation's largest maker of railcars, with 1990 revenues of $1.3 billion. It also makes ships for offshore drilling and is a leading maker of metal containers used for storing and transporting liquefied petroleum gas. For the Navy, Trinity makes tugboats and surveillance ships.
Gabelli thinks the stock, now trading at 24 7/8, will be worth 70 in three years, when it should be earning about $10 a share. Gabelli has accumulated an 8% stake in Trinity.
Another pick, Kollmorgen, sports a high price-earnings ratio of more than 50. But Gabelli, who has a 19% stake, isn't fazed by the pricey p-e, since he expects a dramatic earnings jump as the recovery takes hold. Also, Kollmorgen has been a rumored takeover target, and the company has been buying back shares.
Among companies with a strong consumer franchise, Gabelli is high on Affiliated Publications, which owns The Boston Globe, New England's largest newspaper. Affiliated also owns BPI Communications, a fast-growing publisher of specialty magazines such as Billboard. Currently trading at 9 3/8, the stock is worth 25, according to Gabelli. He thinks it will hit 45 by 1995, based on robust earnings.
GABELLI'S TOP PICKS Stock Recent P-E Target price ratio price AFFILIATED PUBS. Newspaper publisher 9 3/8 26 25 AMERICAN TV & COMM. Cable TV systems 40 3/4 37 80 DONALDSON Engine air cleaners 38 15 55 KOLLMORGEN Motors and controls 11 1/8 50 24 PARAMOUNT COMM. Books and movies 41 3/4 21 70 TRINITY INDUSTRIES Railcars 24 7/8 16 70 DATA: GAMCO INVESTORS INC.