We recently published a list of Mario Gabelli Stock Portfolio: 10 Best Stocks to Buy. In this article, we are going to take a look at where Mueller Industries, Inc. (NYSE:MLI) stands against the other Mario Gabelli-approved stocks.
GAMCO Investors, Inc., formerly Gabelli Asset Management Company, is a prominent American firm, which has its headquarters in Rye, New York. The company specializes in offering investment advice and brokerage services to mutual funds, institutional clients, and select investors. The company was founded and is majority-owned by Mario Gabelli, who earned over $750 million in compensation over the past several years.
Veteran investor Mario Gabelli has earned millions of dollars by betting on the unloved. He likes to invest in companies that are NOT being followed or that are NOT being covered by Wall Street analysts. If the companies are not forming part of an index, it makes them even more appealing.
The hedge fund manager remains committed to active value investing. His investment philosophy of focusing on value stocks over growth stocks prevailed even when passive-index funds and Nasdaq “FAANG” dominated the market during the US Fed’s loose interest-rate policies. His investing secret is simple– “Find a good business having good management, buy the stock at a reasonable price, and then hold that stock for the long term.”
As per Insider Monkey’s 2Q 2024 database, out of the total investment portfolio, ~21.7% accounts for Industrial goods.
What Lies Ahead for the US Stock Market as Per Gabelli Funds
Gabelli Funds believes that the US Presidential election is expected to add to market volatility in 2H 2024. At the same time, the much-anticipated rate cuts in September might give a boost to rotation into areas of the market that have lagged during the year. The investment management firm sees increased volatility in the election. That being said, the economic weakness and volatility are expected to be offset by the underlying rotation and lower rates.
Gabelli seems to be optimistic about the broader US economy. He believes that companies have healthy cash flows and that gross margins are better. The only thing that might weigh over the US equities is the geopolitical risk.
Gabelli recently appeared in the prestigious Barron’s Roundtable discussion. He believes that World GDP, which is measured by the International Monetary Fund, is expected to be ~$115 trillion in 2025. The U.S. is 26%, and China is 17%. The consumer makes up for ~70% of the U.S. economy, and industrial spending accounts for ~12%.
Mario Gabelli mentioned that the US Fed is focused on the four R’s. The first is keeping “rates high for longer.” The second R is “continued runoff of the central bank’s balance sheet,” now occurring at a $60 billion pace monthly, down from ~$95 billion in early 2024. Next, the US Fed continues to make efforts to “reduce aggregate demand.” However, the higher government spending continues to offset these efforts. Finally, the Chairman continues to be “rhetoric about bringing the inflation down.”
Mergers and acquisitions (M&As) and other financial engineering strategies are expected to ramp up substantially, for numerous reasons. Gabelli believes that several private equity funds are about to see the end of their 10-year life cycles, and limited partners (LPs) need liquidity. Therefore, this situation will lead to higher sales. Mario Gabelli expects M&A to pick up globally in 2H 2024.
While the S&P 500 is up over ~15% on a YTD basis, the veteran investor believes that stocks can compound at ~8% annual growth rate in the upcoming years, significantly higher than the earnings from fixed-income securities.
Mario Gabelli is Optimistic About These Sectors
Mario Gabelli seems to gain interest in the sports franchises. This is because sports will remain central to linear television and streaming. The buzz is that media companies are shelling out hefty sums for broadcasting and streaming rights.
Moving on, the veteran hedge fund manager believes that artificial intelligence is a great technology, just like other market experts.
Gabelli’s next pick is natural gas. He believes that, over the next few years, there is a huge potential for prices to increase. This is because some producers are capping wells or producing less and demand continues to pick up as compared to power generators and liquefied natural gas exports.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A worker welding a pipe joint in a metal fabrication facility.
Mueller Industries, Inc. (NYSE:MLI)
GAMCO Investors’ Stake Value: $189.3 million
Percentage of GAMCO Investors’ 13F Portfolio: 2.05%
Number of Hedge Fund Holders: 25
Mueller Industries, Inc. (NYSE:MLI) is engaged in making copper, brass, aluminum, and plastic products. It works through 3 business segments: piping systems, industrial metals, and climate. Over the past few years, the company has benefited from higher demand in the construction and industrial sectors.
In 2013, its gross margins were hovering somewhere around 13%. In FY 2023, its gross margins were over ~23%. Therefore, the company has strong and sustainable pricing power on its goods. Over the short to medium term, Mueller Industries, Inc. (NYSE:MLI) is expected to be supported by an expected rebound in construction activity and interest rate cuts. The company’s diversified product line, serving numerous sectors, together with its strong distribution network should continue to act as growth drivers.
Wall Street analysts opine that continued investments in infrastructure and construction might support the company as these sectors are the main drivers of demand for its products. Recently, the company indicated undertaking a $20 million investment at the U.K. tube mill and refinery. This will enable copper tube mills to melt and recycle the scrap. Moreover, the company recently highlighted that its internal investments continue to pay off. It expects these investments to yield even greater benefits as and when market conditions improve.
Its acquisition of Nehring Electrical Works, which was completed during 2Q 2024, gives a substantial platform for expansion in the energy infrastructure space. As per Insider Monkey’s 2Q 2024 database, 25 hedge funds were long Mueller Industries, Inc. (NYSE:MLI).
Diamond Hill Capital, an investment management company, released its third-quarter 2023 investor letter and mentioned Mueller Industries, Inc. (NYSE:MLI). Here is what the fund said:
“We also initiated short positions in Mueller Industries, Inc. (NYSE:MLI), Bank of Hawaii, Alarm.com Holdings and Garmin in Q3. Mueller Industries is a leading producer of copper tubes and pipes for plumbing and HVAC systems — a cyclical industry with largely commoditized products that has seen meaningful margin gains in recent years tied to tailwinds we anticipate will likely reverse in coming years. Further, we expect long-term volume trends will likely remain sluggish as copper piping continues losing share to plastic over time. Given our expectation earnings power will revert to historical levels over time, we initiated a short position during the quarter.”
Overall MLI ranks 2nd on our list of best stocks to buy according to Mario Gabelli. While we acknowledge the potential of MLI as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than MLI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
