Excerpt from Mario Gabelli's December 31st letter to shareholders of The Gabelli Asset Fund; discussion of stocks is in alphabetical order:
Cablevision Systems Corp.(2.26% of net assets as of December 31, 2006) (NYSE:CVC) ($28.48 - NYSE) is one of the nation’s leading communications and entertainment companies. Headquartered in Bethpage, N.Y., Cablevision serves 3 million cable customers in the most important cable TV market – New York.Cablevision also operates and has majority interests in a number of sports related assets, including Madison Square Garden, the N.Y. Knicks, the N.Y. Rangers, the MSG Network, and six other regional sports networks. In addition, Cablevision’s Rainbow Media unit owns high growth cable networks, including AMC, Women’s Entertainment, and IFC. In October 2006, Cablevision’s controlling Dolan family made a bid to take the company private for $27 per share.In January 2007, the Dolans raised their offer to $30 per share.This follows the Dolans’ June 2005 attempt to purchase the cable systems for $21 per share and a $10 per share cash distribution made in April 2006. We view the $30 per share offer as inadequate, given the recent positive dynamics in the cable industry and would look for substantially increased consideration from the Dolan group or a merger with newly public Time Warner Cable.
Curtiss-Wright Corp.(0.76%) (NYSE:CW) - ($37.08 - NYSE)is a manufacturer of actuation and electronic devices for the aerospace and industrial markets. The company makes high performance actuation systems used in airplane wings, pumps and valves for the nuclear power generation industry and provides laser and shot peening services to the aerospace, automotive, and general industrial markets. An area of strong growth for Curtiss-Wright is the nuclear power generation business.The company provides critical controlled pumps and valves.Currently, CW’s growth is based on the plant life extension and maintenance of the 103 nuclear power plants in the U.S. Plant life extensions provide CW with substantial spare, repair, and engineering systems business. About 39 plants have received licenses for an extended life.Another 39 plants will be seeking plant life extension from now to 2012, and the remainder is expected to come afterwards.The company’s nuclear business should increase CW’s future earnings growth.
Deere & Co.(1.49%) (NYSE:DE) ($95.07 - NYSE) was founded in 1837 and is headquartered in Moline, Illinois. Deere & Company manufactures and distributes agricultural and commercial equipment worldwide. It operates in four segments: Agricultural Equipment, Commercial and Consumer Equipment, Construction and Forestry, and Credit. For the quarter ended October 31, earnings reached $277 million, or $1. 20 a share, from $233 million, or 96 cents, in the year earlier period. Earnings from continuing operations, which exclude the company’s discontinued healthcare business, were $1. 20 versus 91 cents. Revenue reached $5. 12 billion from $4. 99 billion. We expect DE to benefit from global growth in construction and forestry, lower steel prices, and the U. S. agricultural cycle, which is in a growth stage.
Ferro Corp. (0. 39%) (NYSE:FOE) ($20. 69 - NYSE), based in Cleveland, Ohio, is a global producer of performance chemicals and specialty materials. Its product offerings include polymer additives, fine chemicals, and specialty plastics, among others. FY 2005-2006 was dynamic for Ferro. The company underwent a management change, finished restating its financial results, and took steps to improve its operational performance. We believe Ferro businesses are poised to rebound. In addition, we think the company is a likely acquisition candidate. Such an event could help to surface shareholder value.
General Mills Inc. (0. 80%) (NYSE:GIS) ($57. 60 - NYSE) is a leading producer of packaged food; its brands include Cheerios, Wheaties, and Total cereals, Betty Crocker baking mixes, Yoplait yogurt, and Hamburger Helper. In 2001 General Mills expanded its portfolio with its purchase of the Pillsbury Company from Diageo for approximately $10 billion. Pillsbury produces and markets Pillsbury branded refrigerated dough and baked goods, Green Giant vegetables, Old El Paso Mexican Foods, Progresso soup, and a wide range of foodservice products. The combined company, based in Minneapolis, MN, generates approximately $12 billion of annual revenue.
Hilton Hotels Corp. (0. 82%) (HLT-OLD) ($34. 90 - NYSE) is a leading lodging company that currently owns, operates, and franchises approximately 2,800 hotels containing 495,000 rooms. Formed in 1919 by Conrad Hilton, the original company sold the rights to use the Hilton brand name outside the United States to a UK-based company in 1964, which re-named itself Hilton Group. On February 22, 2006, over 40 years later, Hilton Hotels acquired the lodging assets of Hilton Group (now known as Ladbrokes) for £3. 3 billion ($5. 7 billion), bringing the global operations of the Hilton brand under one roof and allowing the full spectrum of Hilton’s brands to be used worldwide.
Precision Castparts Corp. (0. 99%) (NYSE:PCP) ($78. 28 - NYSE) is a manufacturer of investment castings and forgings primarily for the aerospace and industrial gas turbine markets. The company also makes metalworking tools and refiner plates for the automotive, pulp and paper, and general industrial markets. PCP is a strong cash flow generator. We believe the company plans to use the cash for acquisitions. PCP’s acquisition strategy centers on buying businesses within the company’s core competencies that include manufacturing component products for complex end users. The strategy also includes finding companies that have procurement or technologies similar to PCP’s and similar customer profiles. These characteristics should provide opportunities for PCP to improve the acquired company’s profitability and enhance PCP’s earnings.
Sequa Corp. (0. 94%) (SQA.A) ($115. 06 - NYSE) is a diversified company with businesses in aerospace, pre-paint metal, specialty chemical, and printing equipment. Chromalloy Gas Turbine, Sequa’s aerospace business, is the largest independent supplier of aftermarket parts for the overhaul and repair of jet and industrial gas turbine engines. Chromalloy should see substantial future growth as new jet and industrial gas turbine engines, delivered in the previous five years, come off manufacturers’ warranties. Sequa’s aerospace business is attractive to original equipment engine manufacturers like General Electric, Rolls-Royce, Pratt & Whitney, and other industrial component manufacturers that are looking to expand their replacement parts business. With roughly $900 million in revenues, Chromalloy’s private market value is estimated to be near the entire public value of Sequa.
Swedish Match AB (0. 74%) (SWMA) ($18. 70 - Stockholm Stock Exchange) produces tobacco products that include snuff, chewing tobacco, cigars, and pipe tobacco. The company’s products are sold in more than 150 countries and it is a leader in the categories it participates in. The company recently restructured their match operations, which is now a smaller but more profitable piece of their business. The company has been benefiting from the growth of the smokeless tobacco market in both Scandinavia and the U. S. , as public smoking bans and health concerns are driving consumers to seek alternative tobacco products to cigarettes.
Telephone & Data Systems, Inc. (2. 28%) (NYSE:TDS) ($54. 33 - AMEX), based in Chicago, IL, is a telecommunications company primarily with wireless and rural local exchange wireline operations. The company’s 81. 2% owned subsidiary, U. S. Cellular Corporation (0. 48%) (NYSE:USM) ($69. 59 - AMEX), is the sixth largest wireless operator in the United States, providing service to 5. 7 million subscribers in markets covering 55 million people in 26 states. USM does not plan to launch any significant new markets in 2007, which should contribute to margin expansion and increased free cash flow generation. TDS Telecom serves 1. 1 million access lines in 30 states. Its ILEC (incumbent local exchange carrier) footprint is predominantly rural (12. 1 households per square mile), and the company enjoys a dominant 69% broadband market share in its territories.
Waste Management Inc. (0. 66%) (WMI) ($36. 77 - NYSE) is the largest non-hazardous waste collection and disposal company in the United States. The company collects waste for commercial, industrial, municipal, and residential customers throughout the U. S. , and operates 283 landfills, 370 transfer stations, 131 recycling facilities, and 17 waste-to-energy facilities. Waste Management has focused on improving profitability by increasing return on capital and cash flow at each of its operations through cost cutting and price increases. In addition, the company is looking for new environmentally friendly ways to increase returns from garbage like landfill gas. The company has a strong history of returning its strong cash flow to shareholders both through dividends and its large share repurchase program.