Gene Marcial's Inside Wall StreetIt might strike investors that Lindsay (LNN), an inconspicuous global manufacturer of farm irrigation systems and other equipment, is a boring stock in a terribly unexciting business. But then mutual-fund guru and ace stock-picker Mario Gabelli and his analysts would vehemently disagree. Not only does Lindsay's fortune sparkle from the rising net income of farmers as the agricultural economy increases strength, but the Omaha-based company is also an attractive buyout prey to larger farm-equipment manufacturers.

Lindsay is benefiting from improving demand for its products from farmers and from a leaner cost structure in its operations. The stock has traded lower -- to an attractive price of $29 a share, down from $33 in mid-July, making it an enticing acquisition candidate for a larger company looking to expand in irrigation, notes Gabelli

Lindsay is just one of five stocks that Gabelli and his team of hotshot stock-pickers believe will outperform the market this quarter. Every quarter, the team selects five diverse potential winners that, indeed, have consistently beaten the Standard & Poor's 500-stock index every year since Gabelli started this practice in January 2006.

Called Gabelli's Focus Five, the ever-changing stocks in this group advanced 136.59% since Jan. 31, 2006, besting the S&P 500's respectable gain of 10.34%. In addition to Lindsay, the Focus Five stock choices for the third quarter are:

HSN (HSNI), the second-largest U.S. multichannel TV commercial network is currently trading at $29 a share. It produced sales of $2.8 billion in 2009 with earnings before interest, taxes, depreciation and amortization (EBTDA) of $194 million, or $1.27 a share. Zacks Investment, which rates HSN a buy, says forecasts for next year's earnings are averaging $3.13 a share. Gabelli's team says HSN's modified cost structure will allow substantial margin improvements. Equally noteworthy, Gabelli believes "an eventual takeover of HSN becomes an early-2011 event" because the stock is still "attractively valued."

Penske Auto Group (PAG), the No. 2 U.S. automotive retailer by revenues is now selling at $14 a share. It should benefit from enhanced credit availability and leasing supported by strong residuals on trade-ins, says the Gabelli group. Penske should see "continued strength through the second half of this year," despite an expected drop in used-car returns.

Visa (V), the largest general-purpose credit card by total volume is now trading at $73.35. It's expected to continue gaining from the big shift in payments to credit and debit cards and to electronic payments. Gabelli figures Visa's revenues will grow at an annual rate of 15% over the next five years. And it's expected to amass about $25 billion, or $34 a share, in cash and earn more than $8 a share in 2014, according to the Focus Five team. .

Discovery Communications
class A (DISCA) stock is trading at $38.61 a share, and class C (DISCK) is now at $34.38, and both are partly an arbitrage play. "We recommend a pair trade in Discovery's stock," says Miller. "Go long [buy] DISCK and short an equivalent number DISCA shares."

Miller expects that investors will benefit from the narrowing of the 12.5% spread between the two stocks. He sees the spread going back to its historic average of 8%. "We believe the spread will narrow when Discovery announces a share-buyback program later this summer," says Miller. He expects Discovery will buy back the lower-priced DISCK shares. Miller explains that a recent rebalancing of the Russell 1,000 and 3,000 indexes removed shares of the nonvoting DISCK shares in favor of the one-vote per share DISCA stock.

In general, Discovery is a bet on the company's strength as a global leader in the niche market of nonfiction programming through its cable brands, such as Discovery Channel, TLC, and Animal Planet. Coincidentally, Discovery's class A stock is also S&P Equity Research's current "Focus Stock of the Week," which is its highest investment recommendation. S&P rates the stock (DISCA) a strong buy with a 12-month target of $50 a share.

A Rare Disappointment

What Gabelli's Focus Five conveniently delivers is a pragmatic portfolio not only for the short run but for the long haul as well because the list is updated every quarter to weed out any backsliders. For instance, among the prior quarter's picks -- HSN, Mead Johnson (MJN), TD Ameritrade (AMTD), TiVo (TIVO) and Weatherford (WFT) -- only HSN made it to the new quarter's choices. That's because the four others disappointed expectations. The result was that for the first time in five years, Focus Five trailed the S&P in the quarter.

Nothing is perfect, to be sure, particularly in stock-picking and forecasting. But the advantage of Focus Five for investors is that Gabelli provides diverse choices for the long run, with updates every quarter -- and usually with enviable results.

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