Mario Gabelli is a money manager with a focus on value. According to Morningstar.com, the Gabelli family of funds manages $14.8 billion in assets, not counting its money market funds. Cash holdings across the fund family are estimated to be an additional $1.9 billion. Gabelli's strength is developing a private market estimate for public companies as the benchmark for valuations. For Gabelli, utility investing has been a strong suit. One of his funds, Gabelli Utility Fund, focuses on utilities that either have great fundamentals for earnings growth and dividend increases or are undervalued based on the consolidation taking place in the sector. As most utility sector investors know, the number of utilities has been dwindling as the sector continues on its multi-year consolidation phase. Reviewing Gabelli's utility sector buys and sells for the 1st quarter of 2013 reveals some interesting moves.
It is easy to comment on the 13,500-share addition of largest position in the Gabelli Funds of National Fuel Gas (NYSE:NFG) worth $810,000 and assume that Gabelli still sees value in it at the current price. However, as a percentage of the 3.9 million shares worth $239 million already owned, this purchase is a bit inconsequential. The table below lists purchases and sales of 1% or greater of a position in Gabelli's utility sector portfolio during the 1st quarter:
Am Electric Power
Am Water Works
The list includes the following sales: Am Electric Power (NYSE:AEP), TECO Energy (NYSE:TE), Allete INC (NYSE:ALE), Consolidated Edison (NYSE:ED), Southwest Gas (NYSE:SWX), Pinnacle West (NYSE:PNW), Westar Energy (NYSE:WR), EOG Resources (NYSE:EOG), South Jersey (NYSE:SJI), Nisource (NYSE:NI), Dominion Resources (NYSE:D), CH ENERGY (NYSE:CHG), OGE Energy (NYSE:OGE), Northeast Uts (NYSE:NU), Am Water Works (NYSE:AWK), AGL Energy (AGL), Exelon (EXC), and Southern Co (NYSE:SO).
As these transactions are lumped together with all other Gabelli Funds, it is difficult to sort out which fund did the buying or selling until each fund's holdings are published. The intriguing aspect of this list is a specific security could be sold in one fund and bought in another. For instance, a stock could be sold in the Income Fund and bought in the Utility Fund. Investors focused only on the Utility Fund holdings may think the position is being increased and Gabelli likes the position when in fact the total fund family is reducing its exposure. By reviewing the fund family as a whole, investors acquire a better picture of Gabelli's overall investment movements.
The transactions with the largest change in ownership over 2% account for 14 of the 23 positions.
Of particular interest are the buys of CNX, ITC and DUK. The reductions in holdings of AWK, AGL, EXC and SO are also fascinating. Each could be explained as follows:
- Based on growth prospects CNX, ITC (FERC-regulated electricity transmission) and DUK (merger related issues) are undervalued;
- Based on current valuations, AWK (5-yr highs) and AGL (5-yr highs) are overvalued;
- EXC has operational issues based on its merchant power exposure and it may be years before the market turns;
- SO has increasing exposure to cost overruns of its nuclear power plant construction projects.
While utility investors should not blindly follow the lead of money managers, analyzing their buys and sells may provide greater insight into the sector. Investors should review their premise for additional purchases of companies that are being sold by long-term oriented money managers and may benefit from researching those companies being purchased.
Author's Note: Please review important disclaimer in author's profile.