Recent Annual Report - Gabelli

Barron’s 2013 Roundtable
Mario J. Gabelli, our Chief Investment Officer, has appeared in the prestigious Barron’s Roundtable
discussion annually since 1980. Many of our readers enjoyed the inclusion of selected and edited comments
from Barron’s Roundtable in previous reports to shareholders. As is our custom, we are including selected
comments of Mario Gabelli from Barron’s 2013 Roundtable, published on January 21, 2013.
B
arron’s: The stock market is
coming off a good year, which
some of you even predicted.
What do you think of stocks now?
Mario, start us off.
Gabelli: Investors have been withdrawing
money from the stock market. We have
seen a negative flow of funds. But let’s
look at China and Japan, which account
for 20% of the $75 trillion global
economy. They have a pretty good shot at
starting their engines and reaccelerating.
Europe is about 20% of the world
economy, and is still a work in progress.
The U.S. is 21%. The U.S. consumer’s net
worth is at an all-time high. He is
reducing debt. This is owed to a
combination of Bernanke, Bernanke,
Bernanke – in other words, the Federal
Reserve [under Chairman Ben Bernanke]
has been printing money, which has
geared to drive financial assets and real
estate prices higher.
Barron’s: Get to the point. Are you
bullish or bearish?
Gabelli: I’m getting there. Corporate
earnings will be okay in 2013, and 2014
looks even better. Interest rates might
rise, but the market has discounted that.
Given the negative flow of funds and the
market’s relatively low price/earnings
multiple, you have to be positive. The
BARRON’S
ROUNDTABLE
MARIO J. GABELLI
Chairman and Chief Investment Officer – Value Portfolios
GAMCO Investors, Inc.
Here’s What’s Cooking for 2013
The members of the Barron’s Roundtable see a year of modest gains for U.S. stocks, trouble for
bonds, and good news for gold. Also featured this week: the best investment bets of
Felix Zulauf and Mario Gabelli. How to play deal stocks, and Japan.
Excerpted from January 21, 2013 by Lauren R. Rublin
stock market could face a lot of potholes
in the near term, and on balance, I don’t
expect the market to rise more than 5%
this year. But I have never been more
excited about specific stocks. This year,
you will be able to make a lot of money as
a result of financial engineering –
companies engaging in deals, takeovers,
split-ups, spinoffs, and such. It is a
phenomenal time to make money in the
market. You get stocks like SodaStream
International (ticker: SODA), which I’m
not recommending, rising to $48 from
$36. It will be a fantastic year to pick
individual stocks.
Barron’s: Then why will the broader
indices see only modest gains?
Gabelli: Our financial system has
structural problems, and at some point the
Fed will have to start withdrawing all the
money it has poured into the system.
Gross: Whenever somebody says, “I’ve
never been more excited,” I run the other
way.
Gabelli: Well, I’m also excited about
being short bonds.
Barron’s: Mario, what did you bring us
today?
Gabelli: If you had been sitting here 12
years ago, you wouldn’t have heard of
Twitter or Facebook [FB] or Google
[GOOG]. If you were here 15 years ago,
3
you were focused on Cisco and a bunch
of tech companies. I am going to talk
about something that has been around
much, much longer. Homer’s Odyssey
mentioned one of the oldest forms of
processed food: sausages. The city of
Frankfurt, in Germany, honored the
creation of the hot dog at its 500th
anniversary. Sausages will be around for
the next couple of hundred years, too.
Abby and I have discussed how you
should be able to make money this year
from spinoffs, split-ups, and oldfashioned
mergers and acquisitions. She
suggested M&A activity will pick up
because companies want to grow. So, how
do you combine sausages and spinoffs?
Barron’s: We haven’t a clue.
Gabelli: Hillshire Brands [HSH] makes
sausages and hot dogs. It was spun out of
Sara Lee, which I recommended in the
past. Hillshire has 122 million shares outstanding.
Investors got one share for
every five shares of Sara Lee. Hillshire
had $694 million of net debt as of
Sept. 29. It could generate $4.1 billion of
revenue in the fiscal year ending June 30.
Earnings will be $1.60 to $1.65 a share.
Three or four companies were looking to
buy Hillshire from Sara Lee before it was
spun off. It is about a $2.5 billion market.
The sausage market is growing by about
5% a year in the U.S. Breakfast sausages