Barbara's Bargains: Blue Chip Value

11/07/2003 12:00 am EST


Barbara Marcin

Portfolio Manager, Gabelli Asset Management, Inc.

A CFA, and a Harvard MBA, Barbara Marcin is the portfolio manager for Gabelli Blue Chip Value. She notes, "Just as bargain shoppers look for brand names as a guide to quality on the discount racks, we search for brand and franchise values trading at deeply discounted valuations." Here are some of her favorites.

"I’d like to suggest a strategy for individuals who are either just coming back into the market, or perhaps have stayed out and accumulated cash – having put it into money markets or bond funds. I would say that these investors should now take advantage of the lower dividend tax rate, which is now 15%. I would suggest buying a little basket of companies with 3%, 4%, or 5% yields: First Energy (FE  NYSE), Honeywell (HON NYSE), Verizon (VZ NYSE), J.P. Morgan (JPM NYSE), and Washington Mutual (WM NYSE).

"These companies already have good current yields, but over the next 1, 2, or 3 years they are going to be increasing their dividends. These companies have referenced the tax cuts when they made their latest dividend announcements, and they’ve said that they are going to keep increasing our dividends, because that is now a better way to return earnings to shareholders.

"In my opinion, we we are returning more to the type of market environment that we had ten years ago, when investors were looking for some of their return from dividends, and would compound returns and reinvest dividends. I think a return to that strategy will lift the prices of these stocks relative to others. I think this strategy is very good for individuals and I think one year from now these stocks will have higher prices and good dividend returns.

"I would also note that while I am a large cap value investor, I also speculate in companies that could really double or triple over the long term. These are my ‘greedy little suggestions’. AES (AES NYSE) and El Paso (EP NYSE) are utilities which have really suffered from problems. I think they will put one foot in front of the other and could have higher prices two or three years from now. But that’s a riskier strategy."

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