Managers at Diamond Hill Capital (Trades, Portfolio) Management disclosed the fund had kicked off three positions when it released its second-quarter portfolio this week.
The fund’s largest holding was in the stock of Arkansas-based Bank OZK (OZK, Financial), which issues real estate loans, largely to support metropolitan infrastructure and construction projects in the U.S.
Other buys included: Ohio-based RPM International Inc. (RPM, Financial) and Houston-based Cadence Bancorp (CADE, Financial). In May, the bank announced it is combining with State Bank Financial Corp. (STBZ) in an all-stock deal of over $1.4 billion. The company reported earlier this year that the merger would create a company with $16 billion in assets, $12 billion in loans, $13 billion in deposits and approximately 100 branches across Texas, Georgia, Florida, Alabama, Tennessee and Mississippi.
The guru management firm also sold out of IT solutions provider DST Systems Inc. (DST, Financial) and packaged foods producer Treehouse Foods Inc. (THS, Financial) in the second quarter, and heaped on shares of social media giant Facebook Inc. (F), wireless provider T-Mobile (TMUS, Financial) and media company Twenty-First Century Fox (FOX, Financial).
Diamond Hill expanded its position in Facebook by 75%, holding a total of 1.6 million shares for a current price of $183 a share. The investment produced an estimated gain of 3% since inception in the fourth quarter of 2015.
T-Mobile's space in the portfolio was expanded by 16,308%, totaling 1.29 million shares. The investment has posted a gain of 10% since being established in the first quarter of the year. The stock traded at $65.40 a share.
Twenty-First Century Fox was expanded by more than 30% to more than 5.2 million shares. The investment has produced an estimated gain of 8%. Shares traded at $44.76 on Wednesday afternoon.
In the second quarter, Diamond Hill held a total of $19.4 billion in assets for a quarter-over-quarter turnover of 6%. It has a total of 10 new stocks in a portfolio of 175 equities. Of those, top buys take up a portfolio space of up to 0.52%. Other new buys represented such a small impact on the portfolio that they could not be measured.
The bulk of the portfolio is in stocks of companies that represent the financial services, industrials, consumer cyclical, health care and technology sectors. Stocks of consumer defensive and energy companies made up a lesser weighting.
Diamond Hill Capital Management (DHIL) was established in 2000 in Ohio. The managers hold seven traditional and alternative equity strategies in separately managed accounts as mutual funds and private investment funds. Clients include institutions, financial intermediaries and individuals. In company-wide documents, managers describe their strategy as the following:
"Our research is predominantly a bottom-up process beginning with fundamental analysis of a company's profitability and market position, financial and competitive position, management quality, valuation and growth components of valuation. Top-down analysis is focused on industry dynamics, including sector economic factors, long-term capital flows, and the regulatory environment, not on macro-economic factors. Investment team insight and experience is then applied to further narrow the universe of investable ideas for deeper analysis including the creation of a financial model. We estimate the intrinsic value for each potential holding, which is independent of its current stock price."
Bank OZK
The bank operates offices primarily in the Southwestern U.S., as well as in Texas, New York and California.
The company also owns a number of finance subsidiary business trusts formed in connection with the issuance of debt and preferred securities. It principally concentrates its activities in real estate loans, which account for the great majority of the bank's loans and leases. The bank's real estate lending arm, which finances many metropolitan construction and development projects, extends further than many of its community banking competitors.
Diamond Hill purchased more than 2.2 million shares for an average price of nearly $48 a share. The investment has produced an estimated loss of 14% so far. The stock sits in about 0.52% of the equity portfolio. The stock traded for just under $41 a share on Wednesday. It was slightly down 0.17% in early afternoon trading. Year to date, the stock is down 16%. It reported a price-book ratio of 1.50 and a price-sales ratio of 5.38. Both ratios are lower than more than 60% of competitors.
The GuruFocus median price-sales chart shows the stock traded above its historical value.
GuruFocus ranked the stock a one-star business predictability rating. The rating is applied to stocks that grow, on average, 1% a year.
GuruFocus ranked the company 5 out of 10 in financial strength and 4 of 10 in profitability and growth. It has a market cap of $5 billion.
It traded at 11.71 times earnings. The ratio is lower than 61% of competitors.
The bank reported a net margin of 46%. It also has a dividend yield of 1.88%, which is lower than 77% of its peers.
GuruFocus only identified one severe warning sign: its asset growth outpaced its revenue growth, which could signal a drop in efficiency.
Analysts estimate the company is expected to post $1.19 billion in revenue in 2020, an improvement from $1 billion in 2018.
RPM International Inc.
RPM manufactures, markets and sells various specialty chemical product lines, including high-quality specialty paints, protective coatings, roofing systems, sealants and adhesives. The majority of revenue comes from North America.
The guru management company purchased a total of 1.08 million shares for an average price of $50 a share. The shares sit in about 0.32% of the portfolio. The investment has produced an estimated gain of 27% since inception.
Shares traded for $63.92 a share on Wednesday afternoon. RPM International bears a 3.5-star business predictability ranking from GuruFocus, which is dedicated to stocks that grow, on average, over 9% a year. It reported a Piotroski F-Score of 7, which highlighted those companies with healthy operations. Earnings, on average, stood at 9% a year over the last 10 years while revenue growth stood at 4% over the same period. The company reported a surge in earnings growth of 39% in the last 12 months.
In afternoon trading on Wednesday, the stock increased 78% over the last five years. Year to date, it is up 20%. The GuruFocus median price-sales chart shows the stock traded above historical value.
The company traded at 25.65 times earnings and 20 times forward earnings. It reported a price-book ratio of 5.24 and a price-sales ratio of 1.65. The price-earnings ratio was ranked higher than 50% of its peers. The other ratios are ranked at least 60% lower than peers. The company has seen revenues grow over the years. It reported $338 million in profits, up from the prior year.
Analysis predicted revenue of $6 billion in 2021, up from $5.5 billion in 2019.
RPM has a market cap of $8.53 billion and is ranked 5 out of 10 in financial strength and 8 of 10 in profitability and growth by GuruFocus.Ă‚
Cadence Bancorp
Cadence’s merger with its partner is expected to close later this year, officials said. The company offers a broad range of banking and wealth management services to businesses, high-net-worth individuals, business owners and retail customers.
A total of 877,000 shares were purchased for an average price of $29. Shares sit in about 0.13% of the portfolio. Shares sold for $27.66 a share on Wednesday. The investment has produced an estimated loss of 4%.
The GuruFocus median price-sales chart indicates the stock trades above its historical value, although the chart is incomplete.
It reported a price-book ratio of 1.72 and a price-sales ratio of 5.32. Both ratios are lower than 80% of its peers in the same industry.
Cadence has reported an increase in revenue over the years.
The company reported a dividend yield of 0.90%, which is among the lowest in the industry.
Cadence has a market cap of $2.36 billion and is ranked 4 out of 10 in financial strength and 3 of 10 in profitability and growth.
Sold out
DST Systems
DST Systems Inc. is engaged in the software industry. It provides information processing and servicing solutions. The company generates a majority of its revenue in the U.S. It provides mostly IT processing and servicing solutions to the financial industry. Clients include asset management firms, brokerages, retirement funds and health care companies. The company operates three business segments: financial services, healthcare services and customer communications.
The Peter Lynch chart shows the stock trades below fair market value, which suggests that it is undervalued.
GuruFocus ranked the stock a one-star business predictability rating. This rating is applied to stocks that grow, on average, 1% annually.
Guru shareholders include Joel Greenblatt (Trades, Portfolio), John Paulson (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio). Third Avenue Management (Trades, Portfolio) held more than 62,900 shares in the first quarter of the year.
Treehouse Foods
Treehouse Foods has products that include nuts, beverages, salad dressings, cookies and crackers, cereals, pickles and a variety of sauces. GuruFocus ranked the stock a one-star business predictability rating.
The Peter Lynch chart indicates the stock trades above fair market value, suggesting it is overvalued.
Guru shareholders in the first quarter included Jim Simons (Trades, Portfolio), Greenblatt and Lee Ainslie (Trades, Portfolio).
