Diamond Hill Capital (Trades, Portfolio) recently disclosed its portfolio updates for the second quarter of 2021, which ended on June 30.
Founded in 2000 and headquartered in Columbus, Ohio, Diamond Hill Capital (Trades, Portfolio) identifies itself as an independent investment management firm that seeks to align employee interests with investor interests by investing in the same portfolios. Its strategy is to maintain a long-term focus based on fundamental, ground-up analysis of a company’s intrinsic value, as determined by factors such as market position, competition, management, valuation and growth prospects. The funds focus on buying undervalued companies that have a solid and proven foundation for revenue production.
Based on the above criteria, the firm’s top buys for the quarter were Freeport-McMoRan Inc (FCX, Financial) and Wells Fargo & Co (WFC, Financial), while its biggest sells were Kimberly-Clark Corp (KMB, Financial) and JPMorgan Chase & Co (JPM, Financial).
Freeport-McMoRan Inc
The firm established a new holding of 11,460,445 shares in Freeport-McMoRan Inc (FCX, Financial), impacting the equity portfolio by 1.62%. During the quarter, shares traded for an average price of $38.85.
Freeport-McMoRan is a mining company based in Phoenix, Arizona. It primarily operates large, long-lived assets with reserves of copper, gold and molybdenum. It is one of the world’s biggest publicly traded copper companies.
On Aug. 4, shares of Freeport-McMoRan traded around $36.28 for a market cap of $53.20 billion. According to the GuruFocus Value chart, the stock is “significantly overvalued.”
The company has a financial strength rating of 5 out of 10 and a profitability rating of 6 out of 10. While the interest coverage ratio of 8.78 is worse than 81% of industry peers, the Piotroski F-Score of 7 out of 9 indicates a very healthy financial situation. The return on invested capital (ROIC) surpassed the weighted average cost of capital (WACC) in the most recent quarter, indicating a turn to profitability.
Wells Fargo & Co
The firm also took a new stake of 5,298,654 shares in Wells Fargo & Co (WFC, Financial) after selling out of its previous investment in the stock in the first quarter of 2020. The trade had a 0.91% impact on the equity portfolio. Shares traded for an average price of $44.52 during the quarter.
Wells Fargo is a U.S. bank major that is still reeling from the aftershocks of a fake account scandal back in 2016. After the incident, Wells Fargo was subject to restrictions such as an asset cap. Recently, the Federal Reserve has signaled it will accept Wells Fargo’s plan to overhaul its governance functions, which is key if they bank wants to ease its regulatory restrictions.
On Aug. 4, shares of Wells Fargo traded around $46.80 for a market cap of $191.56 billion. According to the GuruFocus Value chart, the stock is “fairly valued.”
The company has a financial strength rating of 3 out of 10 and a profitability rating of 5 out of 10. The cash-debt ratio of 1.43 and debt-to-equity ratio of 1.0 are about average among industry peers. The return on equity of 12.14% and return on assets of 1.24% are above their respective industry medians of 8.84% and 0.87%.
Kimberly-Clark Corp
The firm cut its stake in Kimberly-Clark Corp (KMB, Financial) by 1,412,392 shares, or 54.99%, for a remaining holding of 1,155,975 shares. The trade had a -0.79% impact on the equity portfolio. During the quarter, shares traded for an average price of $133.51.
Kimberly-Clark is a multinational personal care products manufacturer based in Irving, Texas. It produces mainly paper-based sanitary products as well as surgical and medical instruments. The company’s popular brand names include Cottonelle, Viva, Kleenex and Huggies.
On Aug. 4, shares of Kimberly-Clark traded around $133.50 for a market cap of $45.19 billion. According to the GuruFocus Value chart, the stock is “fairly valued.”
The company has a financial strength rating of 4 out of 10 and a profitability rating of 7 out of 10. The cash-debt ratio of 0.03 is lower than 91% of industry peers, but the Altman Z-Score of 3.66 suggests the company is not in danger of bankruptcy. The three-year revenue growth rate is 2.7%, while the three-year Ebitda growth rate is 0.8%.
JPMorgan Chase & Co
The firm sold out of its 1,000,866-share holding in JPMorgan Chase & Co (JPM, Financial), impacting the equity portfolio by -0.62%. Shares traded for an average price of $157.04 during the quarter.
By assets, JPMorgan is the largest bank in the U.S. and the sixth-largest bank in the world. Based in New York, the investment banking company offers a full range of traditional and investment banking services to individual and corporate clients worldwide.
On Aug. 4, shares of JPMorgan traded around $153.15 for a market cap of $455.81 billion According to the GuruFocus Value chart, the stock is “modestly overvalued.”
The company has a financial strength rating of 3 out of 10 and a profitability rating of 5 out of 10. The cash-debt ratio of 1.47 and debt-to-equity ratio of 1.68 are about average for the banking industry. The return on equity of 16.22% and return on assets of 1.30% are above their respective industry medians of 8.84% and 0.87%.
Portfolio overview
As of the quarter’s end, the firm held shares of 158 stocks in an equity portfolio valued at $26.33 billion. The turnover rate for the quarter was 6%.
The top holdings were American International Group Inc (AIG, Financial) with 3.73% of the equity portfolio, Berkshire Hathaway Class B shares (BRK.B, Financial) with 2.88% and KKR & Co Inc (KKR, Financial) with 2.78%. In terms of sector weighting, the firm was most invested in financial services, consumer cyclical and health care.
