Here's What This $11 Billion Value Investor Has Been Buying

It can pay off to keep an eye on the big guys.

Feb 6, 2014 at 5:15PM

Every quarter, many money managers have to disclose what they've bought and sold via 13F filings. Their latest moves can shine a bright light on smart stock picks.

Today, let's look at Diamond Hill Capital Management, founded in 2000 and based in Ohio. Its management has explained, "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." Like other value-oriented investors respected by The Motley Fool, Diamond Hill seeks undervalued investments and margins of safety.

The company's reportable stock portfolio totaled $11 billion in value as of Dec. 31, 2013.

Interesting developments
So what does Diamond Hill's latest quarterly 13F filing tell us? Here are a few interesting details:

The biggest new holdings are Franklin Resources and Marsh & McLennan Companies, Inc. Other new holdings of interest include Groupon (NASDAQ:GRPN). Groupon has struggled in recent years, but it roared back in 2013, gaining 142% as it boosted business (albeit with slimmer profit margins) by starting to sell merchandise, among other moves. With its travel division doing well, it has been suggested that Priceline.com might do well to buy Groupon.

Among holdings in which Diamond Hill Capital Management increased its stake was Teva Pharmaceutical Industries (NYSE:TEVA). Teva's oral multiple sclerosis drug laquinimod received a negative opinion from Europe's regulators recently. Some have been worried about the impending patent-protection expiration of its multiple sclerosis drug, Copaxone, but the effect of that will be dulled by an FDA approval of a higher dose Copaxone formulation. Bulls focus on the fact that Teva Pharmaceutical Industries is still a major player in generic drugs, with more than 140 product registrations awaiting FDA approval. Teva Pharmaceuticals recently bought NuPathe and its FDA-approved patch for migraines. Its stock yields 2.5%.

Diamond Hill Capital Management reduced its stake in lots of companies, including Baidu (NASDAQ:BIDU) and KeyCorp (NYSE:KEY). China-based search-engine giant Baidu has gained some 77% in 2013, and plenty of bulls expect further growth. Last month, JPMorgan Chase analyst Alex Yao boosted his price target for Baidu to $210 -- the stock has recently been near $150 per share. Yao likes Baidu's prospects in the mobile arena. Baidu's last quarter featured revenue up 42%, but profit margins shrinking a bit due in part to investments in video, smart TVs, security software, group buying (a la Groupon), and more.

KeyCorp, a bank, has seen its stock rise by about 34% over the past year. Its fourth quarter was mixed, with earnings up 21% over year-ago levels and revenue roughly flat. In a conference call, management pointed out three areas the company has been focusing on -- optimizing and growing revenue, improving efficiency, and effectively managing capital -- and said, "We made meaningful progress in each of these areas." Late last year, my colleague Dave Koppenheffer viewed KeyCorp as on its way to becoming a "wonderful company." KeyCorp's dividend yields 1.7% and was hiked by 10% last year.

Finally, Diamond Hill's biggest closed positions included Nike and Charles Schwab Corporation. Other closed positions of interest include Hartford Financial Services Group (NYSE:HIG). Hartford has been shifting its focus from annuities, retirement planning, and life insurance toward property and casualty insurance, while it also works to reduce its significant debt. Following a strong third quarter, Hartford Financial Services Group's fourth quarter featured core earnings up 78% and management citing "improved financial flexibility and growing dividend capacity from our operating subsidiaries." (Its dividend was hiked by 50% last year and recently yielded 1.9%.)

We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. 13F forms can be great places to find intriguing candidates for our portfolios.

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Selena Maranjian, whom you can follow on Twitter, owns shares of Baidu and Priceline.com. The Motley Fool recommends Baidu, Nike, Priceline.com, and Teva Pharmaceutical Industries. It owns shares of Baidu, KeyCorp, Nike, and Priceline.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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