GAMCO CEO Mario Gabelli says 2012 will be risky, but there are some bright spots, such as big auto growth in China.
“How can I make money on this?” Gabelli asks during an interview with Barron’s. “The infrastructure is aging, whether it's cars, trucks or airplanes.”
“The average age of trucks on the road has risen to 6.7 years. Also, the widening of the Panama Canal will require the use of different types of trucks.”
For this market segment, Gabelli favors Genuine Parts, which he also recommended last year. “It makes replacement auto parts,” he says. “The company went public in 1948 and has increased its dividend every year since. It has no debt. Earnings are terrific.”
In the next five years, says Gabelli, Genuine Parts revenue could grow by 6 percent a year. With some slight margin expansion and stock buybacks, you could get 10 percent earnings growth. The company pays out about 50 percent of its earnings in dividends.
Another auto-related stock Gabelli likes is auto parts supplier Dana Holdings, which came out of bankruptcy protection five years ago and sells to original-equipment manufacturers.
“Cash and debt are equal,” Gabelli says. “They have a convertible preferred issue, equal in price to the common. The convert is held by some hedge funds that get a 4 percent coupon. So far they haven't looked at converting. These are mostly private-equity investors who owned the debt before the bankruptcy filing.”
MarketWatch reports that Kelley Blue Book, the leading provider of new car and used car information, projects January new-vehicle sales at 30 percent below the December high, coming in at approximately 900,000 units for the month or a 13.2 million Seasonally Adjusted Annualized Rate (SAAR). At 900,000 units overall, sales would be up nearly 10 percent year-over-year.
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