INVESTMENT SCORECARD
While the third quarter was a difficult one for the market, there were some bright spots for the Fund’s holdings. Deere (3.2% of net assets as of September 30, 2022, +12%) rose as it delivered strong top and bottom line results that demonstrated the company’s ability to generate strong profits from its ability to pass along price increases to consumers while maintaining operational discipline. The company further expressed its confidence in the 2023 growing season for farmers, with early order books robust and product mix very strong. Shares of Genuine Parts (2.2%, +13%), owner of NAPA Auto Parts, and O’Reilly Automotive (0.8%, +11%) both rose as auto aftermarket retailers enjoy substantial pricing power, critical in an inflationary environment, and tight auto supply, causing consumers to hold their cars for longer than usual, necessitating spend on parts to keep them running. IDEX (1.2%, +10%) is winning market share from more supply-constrained competitors across its differentiated niche businesses and is capturing price realization in excess of inflation. Finally, AMETEK (3.2%, +3%) is benefiting from acceleration in its commercial aerospace and automation end markets alongside strong price realization that is more than offsetting cost inflation.
On the negative side, Sony (1.8%, -22%) shares declined due to growing concerns about its video game business amid increased competition with Microsoft post its acquisition of Activision Blizzard, as well worries about the impact of looming global recession on consumer spending.
While Sony’s diversified global businesses offer a defensive position for the long run, short-term headwinds include cyclical weaknesses in video games and low-to-mid end smartphone markets, and difficult year-over-year comparisons for its movie business. Newmont Mining (1.1%, -29%) shares fell as the company is experiencing increasing operating costs, while the price of commodities (principally gold and copper) are falling, resulting in decreased profitability. Finally, with a looming recession and consumers cash-strapped due to inflation, companies with significant exposure to advertising and/or cable cord-cutting were also impacted in the quarter, with Alphabet (0.7% -12%), Comcast (0.7%, -25%), and Rogers Communications (0.8%, -18%) all declining.
The Asset Fund is subject to the risk that the portfolio securities’ PMV may never be realized by the market, or that the portfolio securities’ prices decline.
LET’S TALK STOCKS
Aerojet Rocketdyne Holdings Inc. (AJRD, Financial) (0.2% of net assets as of September 30, 2022) (AJRD – $39.99 – NYSE), based in El Segundo,California, is a manufacturer of aerospace and defense products and systems for defense and space applications. The manufacturing operation is a leading technology based designer, developer, and manufacturer of aerospace and defense products for the U.S. government, including the Department of Defense and NASA. AJRD also manufacturers products for other governmental contractors and the commercial sector.
Crane Co., (CR, Financial) (1.1%) (CR – $87.54 – NYSE) based in Stamford, Connecticut, is a diversified manufacturer of highly engineeredindustrial products comprised of four business segments: Aerospace & Electronics, Process Flow Technologies, Payments & Merchandising Technologies, and Engineered Materials with over 11,000 employees across 34 countries. The company announced in March 2022 it will separate into two independent companies where the Payment and Merchandising Technologies business will become “Crane NXT” and the Aerospace & Electronics and Process Flow Technologies business retain the Crane Co. name.
Halliburton (HAL, Financial) (0.2%) (HAL – $24.62 – NYSE), based in Houston, Texas, is one of the world’s largest energy services companies.The company provides a range of vital services and products to upstream oil and gas operators worldwide. HAL is poised to benefit from higher drilling activity, tight equipment capacity and improved pricing across all its services and product lines. The company reduced the capital intensity of its businesses and is well positioned to generate significant free cash flow. Halliburton’s capital allocation priorities remain paying down debt and returning cash to shareholders. As soon as HAL achieves its debt target goal (likely before the end of this year), it will turn its focus on shareholder return, via restoring the dividend and initiating a stock repurchase program. It already increased its quarterly dividend from $0.045/share to $0.12/ share earlier this year, but we expect there is more to come. In 2022, we estimate the company to generate revenue of $20.1 billion, EBITDA of $3.8 billion, and EPS of $1.90. Our 2023P PMV for Halliburton is $44 per share.
Paramount Global (PARA, Financial) (0.2%) (VIA – $19.04 – NASDAQ) is the product of the December 2019 recombination of Viacom and CBS,two companies controlled by the family of the late Sumner Redstone. Paramount (formerly ViacomCBS) is a globally-scaled content company with networks including CBS, Showtime, Nickelodeon, MTV, Comedy Central, VH1, BET, thirty television stations and the Paramount movie studio. The company has used its increased scale to better navigate the shifts in consumer behavior and monetization primarily through the successful launch of its Paramount+ direct-to-consumer platform.
When discussing specific stocks in the portfolios of the Funds, favorable earnings prospects do not necessarily translate into higher stock prices, but they do express a positive trend that we believe will develop over time. Individual securities mentioned are not necessarily representative of a Fund’s entire portfolio. For the holdings discussed, the percentage of the Fund’s net assets and their share prices stated in U.S. dollar equivalent terms are presented as of September 30, 2022.
Returns represent past performance and do not guarantee future results. Investment returns and the principal value of an investment will fluctuate. When shares are redeemed, they may be worth more or less than their original cost. Current performance may be lower or higher than the performance data presented. Visit www.gabelli.com for performance information as of the most recent month end.
