Barbara Marcin: Gabelli Value Picks

11/01/2002 12:00 am EST

Focus:

Barbara Marcin

Portfolio Manager, Gabelli Asset Management, Inc.

"Stocks go up for one of two reasons," says noted value investor Barbara Marcin, portfolio manager for Gabelli Asset Management. "Either because earnings rise or because people are willing to pay more than those earnings." Here, Barbara outlines her view that we may be starting a sustainable advance. She also cites her favorite value plays.

"During the bear market of the last few years, we've seen the opposite of both factors. Earnings were not rising and people were unwilling to pay for declining earnings. Now, however, things are changing. As far as earnings go, the second quarter of this year was the first quarter after seven declines of positive year-over-year comparisons. The current quarter is the second one. So there’s no doubt there has been an improvement in earnings. It may still be a little bumpy, but earnings are definitely on the rise. 

"When will people be willing to pay more for those earnings? Certainly we’ve seen multiples really collapse in the last couple of years. It’s been a terrible bear market – the worst since the Great Depression. We have so many negative things priced in already. One reason for optimism is that there is really good valuation in the market. We have a lot of companies selling for eight to ten times earnings. The ones I like to buy are not only the ones that we expect to have decent earnings over the next year, and are not only priced well with low p/e’s and good dividend yields, but also ones that have excessive pessimism priced in, so that when we do have some kind of recovery, you can really get a bounce off the bottom.  

"The companies that I really favor here are those in the financial sector, which is bearing a lot of the market’s pessimism. Those would be J.P. Morgan (JPM NYSE), Citibank (C NYSE), Merrill Lynch (MER NYSE), and American Express (AXP NYSE). The other area we particularly like are companies in the telecommunications area, which again have low p/e and good yields, such as SBC Communications (SBC NYSE) and Verizon (VZ NYSE). I also like Nextel (NXTL NASDAQ) and AT&T Wireless (AWE NYSE). And finally, I like the utility area. Although it has had a tremendous amount of problems recently, several stocks now offer very good valuations and high-dividend yields, and very good cash flows. Here I like Texas Utilities (TXU NYSE), Duke Energy (DUK NYSE), and TECO Energy (TE NYSE). Despite the negative news that has been associated with these stocks and sectors, I think the worst is over."

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