Market regulations are making it easier for the investing public to scrutinize and learn from the moves of some of the world's greatest investors.
They speak volumes about an investor's confidence in the direction of a company. We often see these forms filed in stocks with smaller market caps, in which investing "whales" (think fund managers) can quickly accumulate a sizable stake in a company through a smaller investment.
One of the most successful investors in this space is Mario Gabelli, founder and CEO of GAMCO Investors. He started the firm in 1977 at age 34 and has seen it grow to over $47 billion in assets under management. With a net worth around $1.6 billion, Gabelli is no stranger to making successful calls over his long career, many of them in stocks with smaller capitalizations.
According to the SEC, GAMCO Investors has been quite busy recently, making a number of portfolio moves that have required 13G/D disclosures to be made. Since the beginning of this month, Gabelli and his portfolio managers have submitted five filings for smaller stocks. Here are the three most interesting:
|Telephone & Data Systems (NYSE: TDS) is a diversified telecommunications company with a market cap of $2.9 billion. With operations in wireless, wirelines and cable services, TDS has roughly 6 million subscribers, most of them under the U.S. Cellular brand.
At the end of last year, GAMCO owned 4.8 million shares of this mid-cap. As of mid-April, however, the fund owned over 8.2 million shares (worth about $216 million), a stark 71% increase. Analysts at J.P. Morgan are also fans of the tiny telecom, having upgraded the stock to "overweight" last month. Income investors will like the added bonus of a 2% dividend yield offered by TDS.
|At $1.5 billion, Churchill Downs (Nasdaq: CHDN) is a small-cap company that recently saw an increased investment from GAMCO. Churchill Downs operates in the gambling and entertainment industries, providing casino gambling and online wagering services on horse racing.
Although ambitious with its expansion so far in 2014 (the company inked a deal to buy a casino in Maine last month), CHDN has had a strong trend of missing Wall Street's earnings estimates.
Despite this, GAMCO increased its position nearly 40% since the end of last year, to nearly 1.3 million shares, worth about $114 million. The stock has a penchant for making new 52-week highs then retreating, so buyer beware if the stock approaches previous levels or overbought territory.
|Journal Communications (NYSE: JRN), another small cap, is a relatively small media company with a market cap just north of $400 million. JRN has a presence in 11 states with its television and radio station operations. It also maintains a publishing arm, wading through an industry that has seen ad revenues decline in the past few years, with Journal's being no different.
This hasn't stopped Wall Street from investing, with large firms like BlackRock and Dimensional Fund Advisors joining GAMCO in its ownership of JRN. Gabelli's moves in JRN echo those made in TDS, with his position size jumping about 75% from 4.7 million shares to 8.2 million, worth nearly $69 million.
Risks to Consider: Investing in small-caps comes with its own special set of risks. Although they have been known to outperform the market at times, small caps can be more vulnerable to issues with cash flow, expansion and management, among others. The resources available to hedge fund managers (such as large amounts of capital, the ability to hold for extended periods, and so on) can help them navigate these risks better than most average investors.
Action to Take --> Of the April portfolio shifts outlined above, TDS has the strongest case for future growth and income. In search of a more diversified approach? Take a look at Gabelli's small-cap fund, the aptly named Gabelli Small Cap Growth Fund (GABSX), which has returned about 25% in the past 12 months.