Mario Gabelli Likes Smart Balance – The Bull Case
July 7, 2012 Leave a comment
A friend asked LongShortTrader : “SMBL: long or short?” , then mentioned that Mario Gabelli and GAMCO Investors like SMBL (Smart Balance) as mentioned here .
Mario Gabelli was one of the first big names in mutual funds. Today the firm he founded, GAMCO Investors, manages $37 billion, and he runs 16 funds, including Gabelli Small Cap Growth (GABSX) and GAMCO Westwood Mighty Mites (WEMMX), both of which have returned yearly averages of more than 8% for the past decade (vs. 6.2% for the small blend category). His pick, Smart Balance, held in both of those funds, serves the lucrative health food market. Under Stephen Hughes, who nurtured hit brands like Celestial Seasonings, Smart Balance is expanding via acquisitions, from heart-healthy buttery spreads to increasingly popular gluten-free snacks and baked goods. The stock trades for a lofty 45 times its most recent 12-month earnings. But Gabelli sees accelerating profit growth ahead as Smart Balance incorporates its latest acquisition and more people are diagnosed with celiac disease or gluten intolerance. He notes: “Health and wellness has been a theme of ours for the past 10 years and will continue to be a theme for quite some time.”
Let’s Examine the Bull Case
- Recent acquisitions, including Udi’s and Glutino may accelerate earnings growth in the intermediate term (Gabelli)
- Celiac disease/gluten intolerance and gluten-free product consumption trends may fuel earnings growth (Gabelli)
- Demographic trends (such as the aging of the boomers) favor the continued success of ‘health and wellness’ goods (LongShortTrader)
- CEO Stephen Hughes seems to have met with success growing Healthy Choice, Tropicana’s, Celestial Seasonings, and Silk Soy Milk as described here. (LongShortTrader)
- Business model that generates signiﬁcant free cash ﬂow. (Management)
- Smart Balance is Recognized as #3 Heart Health Brand, and #1 Leading Brand in Taste and Heart Health (Omnibus Study 2010)
- Fastest growing dairy manufacturer
LongShortTrader has a thesis on the business and stock (which for what it’s worth, has been correct so far) and is currently working on developing a more informed view, as well as an actionable game plan. There are a few other (roughly) comparable names LongShortTrader is examining in parallel, and that may offer more obvious risk/reward , long or short.
Please feel free to contact if you’d like to discuss. This may be the first of several more posts to come…stay tuned.