Joseph A. Gabelli described an approach that combines discounted valuations for companies with additional 'catalysts' to send stock prices soaring
The Keeley Small Cap Fund has been a strong and steady outperformer when compared with peers and its benchmark, the Russell 2000 Value Index.
As an investor, you have probably become familiar with the term "intrinsic value" - especially when mentioned by Berkshire Hathaway $(BRK.A)$ $(BRK.B)$ Chairman Warren Buffett, who cited Benjamin Graham as his mentor for this type of securities analysis.
Joseph A. Gabelli, the manager of the Keeley Small Cap Fund WWSIX, explained how he works with a team of about 30 analysts at Gabelli Asset Management to select companies whose stocks trade below "private market value," and which ideally have current or potential catalysts that can push their stock prices higher. This fund is rated five stars - the highest possible rating - within Morningstar's "small blend" investment category. (There is more information about the fund's performance against indexes and competitors below.)
Gabelli took over as the portfolio manager of the Keeley Small Cap Fund after Gabelli Asset Management acquired Chicago-based Keeley-Teton Advisors in May 2025. He told MarketWatch that he still consults with Nicholas Galluccio, who was the portfolio manager of the fund from 2008 until Gabelli took over. Gabelli also noted he had been working with Galluccio since 2009, since both had been members of the team managing the Teton Westwood Mighty Mites Fund WEMMX, which was subadvised by Gabelli. Gabelli is still part of the management team for the Mighty Mites fund, while Galluccio has stepped down from that role.
Joseph A. Gabelli is a nephew of Mario Gabelli, the founder and CEO of Gabelli Asset Management. Joseph A. (whom we will continue to refer to as "Gabelli") said he had started to work at Gabelli Investment Management while still attending high school, handling clerical tasks and "helping with the website."
He didn't take an immediate interest in the investing industry, he said. Majoring in English at Boston College "was not necessarily the path typical for someone getting into financial services," he noted. "But I continued to work at the firm as a gopher."
Gabelli said that over time, he developed an interest in investing and that he had worked "every job" at the firm - including "trading, sales, marketing and manning the phones." After completing his M.B.A. at Columbia Business School, he joined Gabelli Asset Management full time in 2008, initially as an analyst. Gabelli said all portfolio managers at the firm also work as analysts covering specific sectors or industries. He covers consumer staples, housing and "some communications infrastructure," he said.
Private market value
Gabelli described "private market value with a catalyst" as a philosophical strategy that had been developed and taught by Mario Gabelli at Columbia Business School, and which "compares Buffett's intrinsic value with a control premium."
So this is "the price an informed buyer would be willing to pay for an arm's-length transaction," he said, adding that he and his colleagues "look for a catalyst that will close that discount within 18 months."
'The opportunity for small cap, in active management, has never been bigger.'Joseph A. Gabelli, portfolio manager of the Keeley Small Cap Fund
Gabelli said that five of the Keeley Small Cap Fund's holdings had been acquired over the past 12 months, "with average premiums of more than 35%." But he stressed that a variety of catalysts could unlock value, even for companies that weren't clear targets for acquirers. Catalysts might include regulatory changes, "financial engineering" such as stock repurchases or spinoffs, a change in management or industry consolidation.
So far this year, the Russell 2000 Index RUT - by consensus, the small-cap benchmark - has returned 20.1%, doubling the return of the S&P 500 SPX, according to FactSet.
"This is the first year in a decade in which you have seen small caps outperform - we are in the early innings of that dynamic," Gabelli said. He also emphasized the importance of in-house research in the small-cap space, because "there is a large number of companies not followed by the universe outside our four walls."
"The opportunity for small cap, in active management, has never been bigger," he added. "You have a combination of a significant number of small-cap companies in indexes that don't make money, some with business models that are moonshots."
The Keeley Small Cap Fund typically buys shares of companies with market capitalizations ranging from $100 million to $2.5 billion at initial investment. The fund held 85 stocks at the end of the first quarter. There is some overlap between the fund's holdings and those of the Teton Westwood Mighty Mites Fund, which typically buys shares of companies with valuations of up to $500 million at initial purchase.
Here are some examples of companies held by the Keeley Small Cap Fund that Gabelli discussed:
The largest holding of the fund is Anterix (ATEX), which has a market cap of $2.1 billion. According to Gabelli, Anterix is "the largest holder of 900 MHz spectrum in the U.S." He said the company had "bought up spectrum and converted it to its higher use - mainly building high-speed networks for corporate customers who want to avoid being exposed to the internet."
An important catalyst for Anterix and its stock has been the Federal Communications Commission's ruling in February that expanded the amount of 900 MHz spectrum that the company could use. "They have the equivalent of 10 MHz of spectrum, where before they had 6 [MHz]," Gabelli said. He estimates that Anterix is trading as if the value of its spectrum were discounted by 30%, at a time when competing service providers are scrambling to build out new high-speed services.
SpaceX $(SPCX)$ completed a $17 billion deal to purchase spectrum from EchoStar $(ECHO)$ in May. Amazon.com (AMZN) agreed in April to acquire Globalstar $(GSAT)$ in an $11.6 billion deal expected to be completed next year. And Rocket Lab (RKLB) agreed in June to acquire Iridium Communications $(IRDM)$ in an $8 billion deal that is also expected to be completed in 2027.
All of this leads Gabelli to see 50% upside for Anterix's stock from here.
Gabelli mentioned TTM Technologies $(TTMI)$ as an example of a company well positioned to take advantage of two broad themes that investors are excited about. "On the one hand, this is the largest North American manufacturer of printed circuit boards," he said. But the company also makes electronics used in radar systems and missile components. During the first quarter, 42% of the TTM's net revenue was derived from its aerospace and defense segment. Top customers in that segment include RTX $(RTX)$, Lockheed Martin (LMT), Northrop Grumman $(NOC)$, L3Harris Technologies $(LHX)$ and Boeing $(BA)$.
TTM is not necessarily a takeout candidate, Gabelli said. The Keeley Small Cap Fund has held TTM for more than five years, and the stock has more than doubled this year. "Given that they have both this exposure to rapidly growing areas of the tech space and a large backlog for their defense business, which is also growing rapidly, you can argue the stock does not appear expensive," he said.
For an example of a stock trading at a valuation below the sum of its parts, Gabelli named Arko $(ARKO)$, a convenience-store operator with a market cap of $890 million that is held by the Keeley Small Cap Fund and within the Mighty Mites portfolio.
Gabelli said Arko had been rolling up hundreds of convenience stores (mostly combined with gas stations) before it changed its strategy about a year ago to trim its store count a bit and improve the stores' operations. In February, Arko publicly listed its subsidiary Arko Petroleum $(APC)$, which is a wholesale fuel distributor that includes most of Arko's convenience stores as customers. Arko owns 79.6% of Arko Petroleum's common shares.
Arko Petroleum "essentially makes a fixed spread on the gas that it sells, and pays that out as a dividend," Gabelli said. The stock closed at $21.21 a share on Tuesday. On May 11, when it announced its first-quarter results, Arko Petroleum declared a dividend of 26 cents a share, but said that was only to cover the period from the initial public offering completed on Feb. 13 through the end of the quarter. In that same announcement, Arko Petroleum said it planned to pay a quarterly dividend of 50 cents going forward, "with an expected annual dividend rate of $2.00 per share." That makes for a dividend yield of 9.43%, based on Tuesday's closing share price.
Typically when investors see such a high dividend yield, they expect the dividend to be cut. But Gabelli said the stock price had been held back because "given the newness of this company, it is not understood by the market."
"When Arco looks to monetize their retail business, they will renegotiate their agreement with Arco Petroleum," he said. And once the Arco Petroleum split-off becomes more of "an arm's-length transaction," Arco Petroleum's stock "can easily go from $20 to $30," Gabelli said.
He expects Arco itself eventually to be sold. It now trades at a valuation of five to six times Ebitda, according to Gabelli's estimate, when transactions for that type of retail operator "are typically in the eight to 10 band."
"It is pretty easy to see a scenario in which they can sell and create a lot of value for Arco and Arco Petroleum shareholders," he said.
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July 22, 2026 14:20 ET (18:20 GMT)
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