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Gabelli picks '98 winners
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February 11, 1998: 8:36 a.m. ET
Fund manager predicts 6 to 8 percent U.S. earnings growth, bets on specifics
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NEW YORK (CNNfn) - A top stock analyst said Tuesday he expects U.S. earnings to grow 6 to 8 percent in 1998, but added currencies and local economies will keep overseas earnings flat.
Mario Gabelli, chairman of Gabelli Funds, told "Moneyline with Lou Dobbs" lower interest rates would raise the safety net for the overall market.
Gabelli, whose fund outperformed the S&P with returns of almost 40 percent last year, also shared his stock picks.
Here is a partial transcript.
LOU DOBBS, MONEYLINE ANCHOR: A terrific 1997. This market just seems unstoppable. Is it?
MARIO GABELLI, CHAIRMAN, GABELLI FUNDS: Well, I think it becomes eclectic. Trees don't grow to the sky. We've been there before. So you have to look at earnings. You have to look at multiples, which in turn are a function of interest rates. And things look pretty good. And the powerful element of flow of funds. General Motors (GM) announces a $4 billion stock buyback. Unlike 1994, unlike 1991, you have mega-mergers, you have a powerful flow of funds, and that provides ballast.
DOBBS: Ballast. And will we have wind at our backs with earnings this year?
GABELLI: I think the U.S. earnings are going to be up 6 to 8 percent. I think the non-U.S. earnings are not going to be up, in part to currency, in part to local economy. Two-thirds of the S&P earnings are U.S., up 6 to 8 percent. That's pretty good.
DOBBS: Pretty good but not the levels that we certainly have been accustomed to, and with interest rates continuing to move down, will it be sufficient to offset the lower earnings growth?
GABELLI: If interest rates come down, that gives you a higher multiple. So if you have that 6- to 8-percent earnings growth, that provides a very -- it raises the margin of safety and the safety net for the overall market, but you still have to make a lot of money by being stock specific. Culligan up $15 today. Wonderful.
DOBBS: That's stock specific?
GABELLI: That's stock specific.
DOBBS: And give us some that we can expect to be up, oh, $15 a share over not the next day but perhaps the next week or so.
GABELLI: Well, now -- we need to make a long-term capital game, and it's still 18 months. So electronic commerce. Electronic commerce, Lou. Cendant (CD) . Home Shopping Network (HSNI) . Ticketmaster. (TKTM) Books. Today, a company went public in music -- CD Now. And you have a company called Need to Know. And then, obviously, Time Warner. They're going to be an important factor in the electronic commerce area. So I like that. Ticketmaster. Companies like that. Meld them together. Reader's Digest (RDA) . Lillian Vernon. I think that's an area to be in. I think you should -- you're buying them cheap. Even Time Warner at $66 has some -- will have a back -- a tailwind behind it.
DOBBS: And in other cable companies -- Time Warner, obviously, far more than a cable company, but you have been on the cable companies for a long time. Do you still see them as an attractive buy?
GABELLI: I see a lot of drivers in the programming area. NBA, NFL rights, "ER", even the "Titanic" which someone bid $50 million to show on television, seven going to eight wannabe TV networks, 25 cable networks. I think you'd need to own the programming companies. Viacom, which is a loaded laggard, catching up. Time Warner is in that area. Obviously, some of the other great companies like Disney. But I also like cable because they have that technology mantra. CableVision (CVC) which has also Rainbow programming, has Sports Network. Cablevision's selling at $90. Even though Chuck Nolan says he loves "The Wiz" and I don't, I think the stock can go to $250 over the next three years. So I think there's a lot of room in these companies, and I think there's going to be a lot of activity there.
DOBBS: Let's say that again.
GABELLI: Cablevision, which is selling at $90, which has tripled in the last 12 months, I think, has an intrinsic private market value of in excess of $250 looking out by the year 2000, which is less than two years away.
DOBBS: Mario, as usual, you do not disappoint. You put it right out there for us to take a look at. That's -- I mean, that's...
GABELLI: Tee it up for you, Lou.
DOBBS: And this market you see going where?
GABELLI: Well, I'm not so convinced of the way the market's going. I think it's good to be stock specific. The market didn't do anything for the last six months, but we made a lot of money, and I think that's what it's going to be like over the next 12 months. Banks, brokers, broadcasters, utilities, even the stodgy old gas companies, Lou, where -- you can buy them at 1.2 times book, and you can double or triple your money. There's a lot of deals, a lot of activities, and I think you can make a lot of money stock specific.
DOBBS: In the gas companies, any specific...?
GABELLI: Yeah, I like the company that provides gas in Phoenix and Las Vegas. It's called Southwest Gas. There's 25 million shares. The stock's 18-1/2. Every day I come into work, and I buy more for my clients. I think that one there should double. The management needs to take some smart pills, and I think they can.
DOBBS: OK. Mario, I'm sure that the management appreciates the thought…
GABELLI: Yeah. I'm sure they'll share their enthusiasm with me, too. 
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