Inside Wall Street
BIG BETS ON MODINE AND AEROQUIP
Investor Mario Gabelli thinks the next bull run will be in euroland--and that's where he has been setting his sights. He believes Europe will be a vast growth market for U.S. companies after European Monetary Union takes effect on Jan. 1, 1999--when the euro becomes the common currency for 11 nations. Gabelli is betting not on the large U.S. multinationals but on mid-cap industrial and technology plays.
High on his list: Aeroquip-Vickers (ANV), a worldwide producer of aerospace and automotive components, and Modine Manufacturing (MODI), a maker of heat exchangers that are used for cooling transmissions, engines, hydraulic gear, and in other automotive applications. Gabelli, head of Gabelli Funds, has taken an 11% stake in both companies.
Aeroquip rose to a high of 72 in mid-May and then weakened, along with other automotive and aerospace issues. The stock slumped to 22 in early October. But since then, Aeroquip has rallied, rising to 30 on Nov. 3. Aeroquip serves markets that are expected to boom in the new Europe, says Gabelli, who sees the price rising to 65. Aeroquip will opt for "some kind of financial engineering--or merger," to prepare for European growth, he predicts. That, he adds, should boost Aeroquip's value even more. Analyst James McCann of Merrill Lynch expects Aeroquip will earn $4 a share in 1998, up from 1997's $3.51.
Modine traded at 37 in late April and has since dropped to 31. But Gabelli figures the stock is worth 60. He notes that the demand for Modine's climate-control systems has been on the increase in both the U.S. and Europe. Modine's foreign operations accounted for 31% of 1998 sales of $1 billion. "Its euroland operations will benefit Modine substantially," says Gabelli. Analyst Michael Braig of A.G. Edwards expects earnings of $2.70 a share for the year ending Mar. 31, 1999, and $3.15 in 2000, up from $2.39 in 1998.BY GENE G. MARCIAL