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Diamond Hill Capital Updates Portfolio for Q4 - Top Buys

January 31, 2013 | About:
Holly LaFon

Holly LaFon

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The firm Diamond Hill Capital employs a disciplined intrinsic value-based approach to investing with a long-term perspective, in the footsteps of Ben Graham and Warren Buffett. Based in Columbus, Ohio, it has $9.4 billion in assets under management. According to its most recent letter, from July 2012, Diamond Hill buys stock with a five-year time horizon in mind. In the fourth quarter they bought 11 new stocks, the largest of which were: TJX Companies (TJX), Progressive Corp. (PGR), HollyFrontier (HFC), Navigators Group (NAVG) and Hyster-Yale Materials Handling Inc. (HY).

TJX Companies (TJX)

Diamond Hill bought 3,144,909 shares of TJX Companies in the fourth quarter for $43 each on average. The largest new weighting in its portfolio, it occupies 1.5%.

TJX is a discount global retailer that operates TJ Maxx, Marshalls, HomeGoods and other stores. Its market cap is $33.2 billion.

Over the past 10 years, TJX has been on an upward trajectory. It increased revenue at an average annual rate of 11.1%, EBITDA at 14.5%, free cash flow at 17.3% and book value at 13.7%.

It has been consistently profitable, with net income increasing annually for the past 10 years. Meanwhile, its stock price has advanced 378%.

In its December 2012 results reported Jan. 3, 2013, TJX achieved a 6% comparable sales increase, over an 8% increase the previous year, driven by greater customer traffic at all divisions. The strong sales and margins enabled it to raise its fourth quarter earnings per share outlook to the range of $0.77 to $0.78 a share, a 24% to 26% increase. It also raised full year EPS guidance to $2.50 to $2.51, an approximately 20% increase over the previous year.

TJX has a P/E ratio of 19.2, and its P/B at 9.23 and P/S at 1.38 are both at 52-week highs. Its Wednesday stock price of $42.61 is also approaching its 10-year high.

Progressive Corp. (PGR)

Diamond Hill bought 2,953,687 shares of property and casualty insurance company Progressive Corp. in the fourth quarter for $22 per share on average. It takes a 0.72% weighting in their portfolio.

Progressive is one of the largest U.S. private passenger auto insurance groups, with premiums of more than $15 billion annually, and a market cap of $13.64 billion.

Over the past 10 years, Progressive grew revenue per share at a rate of 8.1% annually on average, and book value at a rate of 6.9%. Meanwhile, free cash flow had a decline rate of 0.8%.

In the past nine years, progressive has consistently earned more than $1 billion in net income, with the exception of a loss in 2008.

Progressive has a P/E of 15.1, P/B of 2.1 and P/S of 0.8. Currently, its stock price of $20.99 is close to a five-year high.

HollyFrontier (HFC)

Diamond Hill Capital purchased 1,051,686 shares of HollyFrontier for $42 per share on average in the fourth quarter.

HollyFrontier is one of the largest independent petroleum refining companies in the U.S. Its operations span the mid-continent, Rocky Mountain and southwestern regions. With a $10.62 billion market cap, HollyFrontier is headquartered in Dallas, Texas. Its stock price on Thursday of $46.55 is close to a 10-year high.

HollyFrontier has the rapid growth rates of 36% for revenue per share, 36.1% for EBITDA and 27.2% for book value, on average annually for the past 10 years.

On Nov. 7, the company reported record net income of $600.4 million, or $2.94 per diluted share, a 15% year-over-year increase. Results were helped by higher than usual crude oil differentials and heavy crude oil differentials, which contributed to a record-high refined product margins.

HollyFrontier has a P/E ratio of 6.6. Its P/B ratio is 1.4, which is close to a one-year high, and its P/S is 0.57, which is close to a three-year high.

Navigators Group (NAVG)

Diamond Hill Capital purchased 204,595 shares of Navigators Group for $52 per share on average, which equals a 0.12% weighting in its portfolio.

Navigators Group is a holding company of international commercial property and casualty specialty insurance, with operations around the world and headquarters in New York.

The company in the past 10 years had a revenue per share growth rate of 7.2%, EBITDA growth rate of 11.5%, and book value growth rate of 10.2%, on average annually. Meanwhile, its free cash flow declined at a rate of 7.6% on average annually.

Also over the past 10 years, its stock gained 113% to trade for $54.17 per share on Thursday afternoon. The price is close to a three-year high.

Navigators Group has a P/E of 16.6, P/B of 0.9 (which is close to a three-year low) and P/S of 0.8977.

Hyster-Yale Materials Handling Inc. (HY)

Diamond Hill purchased Hyster-Yale Materials Handling Inc. for $43 per share on average in the fourth quarter of 2012.

HY is a truck parts company that sells products around the world with the brand name Hyster and Yale. Becoming a publicly traded company in 2012 after being spun off of NACCO Industries Inc. on Sept. 28, HY has a $844.3 million market cap.

In the third quarter, the company reported net income of $24.9 million, or $1.48 per diluted share, a 42% year-over-year increase. Revenues slipped to $585.6 million from $628.8 million a year previously. Revenues descended primarily because of unfavorable foreign currency movements resulting from a weakening euro and Brazilian real compared of the U.S. dollar, and a decline in unit volume mainly in Europe and the Americas.

In the fourth quarter 2012, HY is expecting mitigated global lift truck market growth compared to the previous year, led by decreases in Western Europe, Japan and Latin America. Growth is expected to increase slightly in 2013.

See more of Diamond Hill Capital’s latest portfolio updates here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Diamond Hill Capital.


Rating: 3.0/5 (4 votes)

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