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Diamond Hill Capital’s Top Five Third Quarter Stocks

Monica Wolfe

Monica Wolfe

118 followers
Over the past quarter Diamond Hill Capital added seven new stocks to its portfolio, bringing the total number of stocks to 148 valued at $9.93 billion. The fund manages five long-only equity strategies, three alternative equity strategies and a fixed income strategy. Diamond Hill had $11.0 billion in assets under management as of the close of the second quarter.

The following five companies represent Diamond Hill Capital’s five largest stock holdings as of the close of the second quarter.

Prudential Financial (PRU)

Diamond Hill Capital’s largest position is in Prudential Financial where the fund holds a total of 3,772,797 shares of the company’s stock. Their position in the company represents 3% of their total portfolio and 0.81% of the company’s shares outstanding.

Over the duration of the third quarter, Diamond Hill made a slight decrease of -2.74%. The fund sold a total of 106,473 shares in the price range of $73.16 to $82.62, with an estimated average quarterly price of $78.43. The price per share has gone up about 4.7% since then.

Diamond Hill’s historical holding history as of the close of the third quarter:

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Prudential Financial offers financial products & services including life insurance, annuities, retirement services, mutual funds and investment management. Its business is separated into Financial Services Businesses & Closed Block Business.

Prudential’s historical revenue and net income:

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The company is set to release their third quarter results on Wednesday Nov. 6, 2013, after market close.

Prudential most recently announced that it will not seek to rescind the designation of the company as a non-bank systemically important institution by the Financial Stability Oversight Council (FSOC). The company stated that it will work to develop regulatory standards that take into account the differences between insurance companies and banks, particularly in the use of capital.

The analysis on Prudential Financial reports that the price is at its 5-year high, the company’s financial strength is poor, they have issued $2.8 billion of debt over the past three years and its dividend yield is at a 3-year high.

Top Guru Shareholders of Prudential:

1. Diamond Hill Capital: 3,772,797 shares, representing 3% of their total portfolio and 0.81% of the company’s shares outstanding.

2. David Tepper: 1,727,081 shares, representing 1.8% of his total portfolio and 0.37% of the company’s shares outstanding.

3. RS Investment Management: 878,940 shares, representing 0.47% of their total assets managed and 0.19% of the company’s shares outstanding.

Prudential Financial has a market cap of $38.34 billion. Its shares are currently trading at around $82.46 with a P/S ratio of 0.50 and a P/B ratio of 1.10. The company currently offers a dividend yield of 3.50%.

United Technologies (UTX)

Diamond Hill’s second largest position goes to United Technologies where the fund also holds 3% of its portfolio. Diamond Hill owns 2,757,813 shares of UTX, representing 0.30% of the company’s shares outstanding.

Over the third quarter Diamond Hill cut their holdings by -0.33%. The fund sold a small 9,174 shares in the third quarter price range of $93.80 to $112.00, with an estimated average quarterly price of $103.98. Since then the price per share has gone up about 2.2%.

Diamond Hill’s historical holding history:

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United Technologies provides high technology products and services to the building systems and aerospace industries worldwide.

United Technologies’ historical revenue and net income:

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Top Guru Shareholders of United Technologies:

1. Ken Fisher: 7,782,011 shares, representing 0.85% of the company’s shares outstanding and 2.1% of his total portfolio.

2. Pioneer Investments: 3,686,644 shares, representing 0.4% of the company’s shares outstanding and 1.4% of their total assets managed.

3. Diamond Hill Capital: 2,757,813 shares, representing 0.3% of the company’s shares outstanding and 3% of their total portfolio.

The analysis on UTX reports that the company’s dividend yield is near a 5-year low, they have shown predictable revenue and earnings growth and its operating margin has been expanding. The company’s price is also sitting near its 10-year high of $109.58.

The company recently released its third quarter results which highlighted:

· EPS growth of 13% to $1.55 per share.

· Net income of $1.4 billion, up 13% from last year.

· Sales for the quarter were up 3% to $15.5 billion.

· Operating profit increased 14% from last year.

The Peter Lynch Chart suggests that the company is currently overvalued:

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United Technologies has a market cap of $97.55 billion. Its shares are currently trading at around $106.31 with a P/E ratio of 15.30, a P/S ratio of 1.60 and a P/B ratio of 3.50. UTX also currently offers a dividend yield of 2.00%. The company had an annual average earnings growth of 8.90% over the past ten years.

GuruFocus rated UTX the business predictability rank of 2-star.

American International Group (AIG)

The fund’s third largest position is in American International Group where they hold on to 5,916,507 shares. Their position represents 2.9% of their total portfolio and 0.40% of the company’s shares outstanding.

During the third quarter Diamond Hill cut their position in American International -1.21% by selling a total of 72,313 shares of the company’s stock. They sold these shares in the price range of $44.22 to $50.57, with an estimated average quarterly price of $47.53 per share. Since their decrease in holdings the price per share has increased about 8%.

Diamond Hill’s holding history as of the third quarter:

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AIG is a holding company which, through its subsidiaries, is engaged in a range of insurance and insurance-related activities in the United States and abroad. The company's four reportable segments are as follows: General Insurance, Domestic Life Insurance & Retirement Services, Foreign Life Insurance & Retirement Services and Financial Services.

AIG’s historical revenue and net income:

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Top Guru Shareholders of AIG:

1. Bruce Berkowitz: 86,148,865 shares, representing 5.84% of the company’s shares outstanding and 50.1% of his total portfolio.

2. Fairholme Fund: 80,280,825 shares, representing 5.44% of the company’s shares outstanding and 55.7% of the fund’s total assets managed.

3. HOTCHKIS & WILEY: 15,396,372 shares, representing 1.04% of the company’s shares outstanding and 3.4% of the fund’s total portfolio.

The analysis on AIG reports that the dividend yield is at a 10-year low and that the company’s revenue has been in decline over the past five years.

The company is set to release their third quarter results on Oct. 31, 2013.

AIG also announced last week that it has appointed Seraina Maag as the company’s new President and CEO of its Europe, Middle East and Africa region, effective Nov. 11, 2013. Prior to AIG, Maag was the CEO of North American Property & Casualty for XL Group.

The Peter Lynch Chart suggests that the company is currently overvalued:

1383072787921.png

American International Group has a market cap of $76.64 billion. Its shares are currently trading at around $51.91 with a P/E ratio of 29.40, a P/S ratio of 1.20 and a P/B ratio of 0.80.

Occidental Petroleum Corp (OXY)

The fund’s fourth largest position goes to Occidental Petroleum where they hold on to 3,090,949 shares of the company’s stock. This position represents 2.9% of their total portfolio and 0.38% of the company’s shares outstanding.

During the third quarter Diamond Hill upped their stake by a slight 0.14%. The fund purchased a total of 4,361 shares in the price range of $85.38 to $94.46, with an estimated average quarterly price of $89.71. Since then the price per share has increased about 8.7%.

Diamond Hill’s historical holding history:

1383068522358.png

Occidental Petroleum is an international oil and gas exploration and production company and is o one of the largest in the US, based on equity market cap. The company’s subsidiary, OxyChem, is a major North American chemical manufacturer.

Occidental Petroleum’s historical revenue and net income:

1383074099791.png

The analysis on Occidental Petroleum reports that the company’s revenue has slowed down over the past year, its operating margin has been in a 5-year decline and its price is nearing a 2-year high.

Top Guru Shareholders of Occidental Petroleum:

1. James Barrow: 16,302,226 shares, representing 2.02% of the company’s shares outstanding and 2.4% of his total portfolio.

2. Chris Davis: 7,226,766 shares, representing 0.9% of the company’s shares outstanding and 1.6% of his total portfolio.

3. Steven Romick: 3,616,500 shares, representing 0.45% of the company’s shares outstanding and 4.9% of his total portfolio.

The company recently released its third quarter results which highlighted:

· Core income of $1.6 billion, or $1.97 per diluted share, up from $1.4 billion and $1.7 per share.

· Domestic oil and gas production of 476,000 barrels of oil equivalent per day.

· Total company oil and gas production of 767,000 barrels of oil equivalent per day.

· Oil and segment earnings were $2.4 billion, up from $2 billion last year.

The Peter Lynch Chart suggests that the company is currently overvalued:

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Occidental Petroleum has a market cap of $77.86 billion. Its shares are currently trading at around $96.63 with a P/E ratio of 17.90, a P/S ratio of 3.30 and a P/B ratio of 1.90. Occidental also currently holds a dividend yield of 2.50%. The company had an annual average earnings growth of 10.20% over the past ten years.

GuruFocus rated Occidental Petroleum the business predictability rank of 2-star.

Medtronic (MDT)

Diamond Hill’s fifth largest holding is in Medtronic where the fund holds on to 5,313,585 shares. This holding represents 2.8% of the fund’s total assets managed and 0.53% of the company’s shares outstanding.

Over the duration of the third quarter Diamond Hill made a reduction in holdings of -0.82%. The fund sold a total of 43,725 shares in the price range of $51.51 to $55.88, with an estimated average quarterly price of $53.81 per share. Since then the price per share has risen about 7.1%.

Diamond Hill’s holding history of Medtronic:

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Medtronic is engaged in providing medical technology which is used for alleviating pain, restoring health and extending life for people. The Company develops, manufactures, and markets its medical devices. Its products include those for cardiac rhythm disorders, cardiovascular disease, neurological disorders and musculoskeletal trauma, etc.

Medtronic’s historical revenue and net income:

1383075749273.png

The analysis on Medtronic reports that the company has shown predictable revenue and earnings growth, its operating margin is expanding and its price is nearing a 10-year high. The company has also issued $411 million of debt over the past three years but its debt level is acceptable.

Top Guru Shareholders of Medtronic:

1. James Barrow: 32,245,022 shares, representing 3.2% of the company’s shares outstanding and 2.8% of Barrow’s total portfolio.

2. PRIMECAP Management: 32,130,321 shares, representing 3.19% of the company’s shares outstanding and 2.4% of the fund’s assets managed.

3. Vanguard Health Care Fund: 10,532,800 shares, representing 1.05% of the company’s shares outstanding and 2% of their total portfolio.

Most recently, Medtronic announced that its CoreValve trial results have revealed positive outcomes for patients. The trial found that the product, used to increase likelihood of survival post-open heart surgery, met its primary endpoint in patients who were considered too ill or frail to have their aortic valves replaced through traditional surgery.

The Peter Lynch Chart suggests that the company is currently overvalued:

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Medtronic has a market cap of $58.11 billion. Its shares are currently trading at around $58.26 with a P/E ratio of 16.70, a P/S ratio of 3.50 and a P/B ratio of 3.10. The company had an annual average earnings growth of 5.60% over the past ten years.

GuruFocus rated Medtronic the business predictability rank of 3.5-star.

Check out Diamond Hill Capital’s complete third quarter portfolio here.

Rating: 2.5/5 (4 votes)

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