Kevin Dreyer, Co-CIO of GAMCO Investors, joined Keith Black, Managing Director of RIA Channel, to discuss disciplined value investing.
The US economy is moving to an environment of normalized interest rates after a decade in a very low interest rate environment. After years of a growth-driven market, there are bargains to be had, as the Russell 2000 Value Index trades at 10 to 11 times forward earnings.
GAMCO has 30 analysts and 20 portfolio managers who select stocks based on a bottom-up, value-oriented process. The team searches for companies trading at reasonable multiples with a history of pricing power and generating significant cash flow. By visiting companies and valuing businesses as a sum of the value of each division, GAMCO seeks to establish each company’s private market value with a catalyst and purchase stocks trading at a discount to the private market valuation. While GAMCO invests in all industries and across market cap ranges, the firm has special expertise in industrials, media, entertainment, sports, and consumer brands.
Catalysts may include spinoffs and potential mergers as well as opportunities for financial engineering. Two examples of potentially undervalued stocks include Atlanta Braves Holdings and BellRing Brands. After a recent spinoff from Liberty Media, the $2.3 billion market cap of Atlanta Braves Holdings is at a discount to the team’s value of over $3 billion which doesn’t count the firm’s real estate holdings. BellRing Brands could be an interesting takeover candidate for a large consumer products company with substantial distribution capabilities, as their protein shake brand is mainly sold in Walmart and Costco.
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