Mario Gabelli (Trades, Portfolio) founded GAMCO Investors in 1977, which runs a variety of mutual and closed-end funds. The Gabelli Asset Fund manages $3.6 billion in assets as of the fourth quarter and is rated 4 stars by Morningstar.
According to the firm’s website, the fund follows a value investing strategy that looks for companies that appear underpriced relative to the private market value (PMV), which is the price a strategic buyer would be willing to pay for the whole company.
The following is the performance of the Asset Fund’s Class AAA shares relative to the S&P 500.
During the fourth quarter, Gabelli purchased 32 new holdings. Of the largest five new buys, three were targets in acquisitions that are expected to close in the first quarter of 2015.
Cubist Pharmaceuticals (CBST, Financial)
Gabelli’s largest new purchase is 236,700 shares of Cubist Pharmaceuticals (CBST, Financial) at an average price of $77.46 per share.
Cubist is an antibiotics research company noted for its work with “superbugs”, or bacteria that have developed a resistance to drugs. As of Jan. 22, Cubist became a wholly-owned subsidiary of Merck & Co. (MRK, Financial). According to the Wall Street Journal, Merck will initiate a tender offer for Cubist’s shares and acquire the remaining stock in a second-step merger.
Over the past year, Cubist’s stock has been up 45%, and may be overvalued when compared to the Peter Lynch earnings line.
Chiquita Brands International (CQB, Financial)
Gabelli also bought 970,500 shares of Chiquita Brands (CQB, Financial) at an average price of $14.23 per share.
Chiquita is a distributor of bananas, pineapples and other produce as well as salads and snack products. The company employs more than 21,000 people and operates in more than 70 countries.
Chiquita has been operating at a loss since about 2012. Diluted EPS was -1.21 for the trailing 12 months.
Gabelli also initiated a new position in PetSmart (PETM, Financial) with 131,800 shares at an average price of $73.97 per share.
The stock has been up 28% over the past year. GuruFocus rates PetSmart’s business predictability as a perfect 5-stars. The DCF model projects a fair value of $85.01, giving a 3% margin of safety.
The operating margin has been gradually expanding over time, recording at 10% in FY 2013.
The current dividend yield is 0.9%, and the payout ratio is 18%. The five-year growth rate of the dividend is 20.3%.
Other gurus who hold a stake in PetSmart include Jana Partners (Trades, Portfolio), Ken Fisher (Trades, Portfolio), and John Paulson (Trades, Portfolio).
Volcano Corp (VOLC, Financial)
The next largest purchase during the quarter is 572,500 shares of Volcano (VOLC, Financial) at an average price of $11.93 per share.
Volcano manufactures a variety of precision guided therapy tools for intravascular imaging for coronary and peripheral applications. The company aims to make imaging and therapy simpler, more informative, and less invasive.
The company has been operating at a loss since FY 2013. Over the past year, the stock has been down 13%, and the current short interest is 9.45%.
In December, Royal Phillips (PHG) announced it will buy Volcano for $1.2 billion. According to medical device trade publication MD+DI, a group of Volcano shareholders demanded the management improve the financials by increasing growth, streamlining costs, and coming closer to profitability. The deal in which Phillips will pay $18 per share may help achieve these goals.
AVANIR Pharmaceuticals (AVNR, Financial)
Gabelli bought 493,524 shares of AVANIR (AVNR, Financial) at an average price of $14.04 per share. The purchase had a 0.04% impact on the portfolio.
AVANIR develops and acquires therapeutic products for the treatment of central nervous system disorders. Its product NUEDEXTA is the first and only FDA-approved treatment for the pseudobulbar affect, which occurs secondary to unrelated neurological conditions, and is characterized by episodes of laughing or crying.
In December, Japanese pharmaceutical company Otsuka Holdings announced it will buy AVANIR for $3.5 billion, and will launch a tender offer to acquire all of AVANIR’s outstanding shares.
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