Tags: Gabelli | safety | stocks | Berkshire

Mario Gabelli: 'There's No Margin of Safety' for Stocks

By    |   Monday, 04 May 2015 06:40 AM

Investor Mario Gabelli, CEO of Gamco Investors, sees a bright future for stocks, but risk abounds, he told CNBC.

"As we look into 2016, I'm looking at the economy in Europe picking up. The American companies will do a lot better because of earnings in Europe coming into the U.S.," Gabelli said. "The [U.S. stock] market is a function of earnings, and we're comfortable with that."

The eurozone economy grew only 0.9 percent last year, but is showing signs of life early this year, as the European Central Bank embarks on 60 billion euros of quantitative easing a month.

As for profits, analysts expect the S&P 500 to produce an earnings decline of 2.8 percent for the first quarter, according to FactSet.

When it comes to Gabelli's caution, "on balance there's no margin of safety," he said. "If something goes wrong, you'll have the volatility that you had [Thursday]." The CBOE Volatility Index, which measures the expected volatility of the S&P 500, jumped 9 percent Thursday.

Meanwhile, with mixed messages coursing through the stock market as the S&P 500 index hovers less than 2 percent below its record high, you could do a lot worse than snapping up some of Warren Buffett's Berkshire Hathaway.

"The [class A] stock book value at the end of last year was $146,000. We think it is $160,000 this year. At the end of next year probably $175,000 or $180,000. . . . We calculate the value of the business, if we can sell it, is probably in the $240,000 area per share," Gabelli stated.

"Class B shares of Berkshire Hathaway look downright cheap following a four-month retreat, at a time when it's hard to find any stock bargains," wrote MarketWatch columnist Michael Brush. "And the shares offer an attractive risk-reward balance in a market that looks precarious."

Berkshire B shares have dropped 5.3 percent so far this year, compared with a 2 percent increase for the S&P 500. The stock traded at $142 Friday. Brush sees support at $140.

"So pick up some Berkshire shares now, as long as you have the minimum five-year time horizon that Buffett prescribes," Brush noted.

"Berkshire's shares trade for about 1.45 times book value. Buffett says he would be a buyer of the stock, with company money, if it were to trade below 1.2 times book."

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Investor Mario Gabelli, CEO of Gamco Investors, sees a bright future for stocks, but risk abounds, he told CNBC.
Gabelli, safety, stocks, Berkshire
Monday, 04 May 2015 06:40 AM
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