Diamond Hill Capital Trades Citigroup for Bank of America

Diamond Hill Capital (Trades, Portfolio) recently disclosed its portfolio updates for the fourth quarter of 2020, which ended on Dec. 31.

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 biggest buys for the quarter were Bank of America Corp. (NYSE:BAC) and Truist Financial Corp. (NYSE:TFC), while its biggest sells were Citigroup Inc. (NYSE:C) and Alphabet Inc. (NASDAQ:GOOGL).

Bank of America

The firm invested in 15,187,746 new shares of Bank of America (NYSE:BAC) after selling out of its previous holding in the stock in the first quarter of 2019. The trade had a 2.17{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} impact on the equity portfolio. During the quarter, shares traded for an average price of $26.85.

Bank of America is a U.S. global bank major headquartered in North Carolina. With approximately $2.61 trillion in total assets, it provides a wide range of traditional, corporate and investment banking services and other financial services.

On Feb. 12, shares of Bank of America traded around $33.37 for a market cap of $288.68 billion and a price-earnings ratio of 17.84. 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 4 out of 10. The cash-debt ratio of 1.37 is average for the industry, while the Piotroski F-Score of 5 out of 9 indicates a stable financial situation. The return on equity of 6.13{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} is lower than 62{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of industry peers, while the return on assets of 0.68{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} is below the industry median of 0.78{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}.

Truist Financial

The firm also invested in a new holding of 6,283,688 shares in Truist Financial (NYSE:TFC) after selling out of its previous stake in the first quarter of 2014. The trade impacted the equity portfolio by 1.42{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}. Shares traded for an average price of $45.38 during the quarter.

Based in North Carolina, Truist Financial is a bank holding company formed from the December 2019 merger of BB&T and SunTrust Banks. It primarily provides banking and trust services for small and mid-size businesses, public agencies and local governments.

On Feb. 12, shares of Truist Financial traded around $54.01 for a market cap of $72.86 billion and a price-earnings ratio of 17.48. 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 0.41 is below 79{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of industry peers, but the Piotroski F-Score of 7 out of 9 is typical of a healthy financial situation. The return on equity of 6.10{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} and return on assets of 0.91{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} are near their respective industry medians of 7.78{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} and 0.78{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}.

Citigroup

The firm reduced its stake in Citigroup (NYSE:C) by 8,900,725 shares, or 87.75{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}, for a remaining holding of 1,243,091 shares. The trade had a -2.11{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} impact on the equity portfolio. During the quarter, shares traded for an average price of $50.95.

Citigroup is a U.S. global bank major based in New York. It has approximately $2.21 trillion in total assets and provides a wide range of traditional, corporate and investment banking services and other financial services.

On Feb. 12, shares of Citigroup traded around $63.63 for a market cap of $132.48 billion and a price-earnings ratio of 12.68. According to the GuruFocus Value chart, the stock is modestly undervalued.

The company has a financial strength rating of 3 out of 10 and a profitability rating of 4 out of 10. The cash-debt ratio of 1.03 is lower than 61{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of peers, while the Piotroski F-Score of 3 out of 9 implies poor business operations. The return on equity of 5.79 and return on assets of 0.54 are both lower than the industry medians.

Alphabet

The firm also cut its Alphabet (NASDAQ:GOOGL) investment by 117,659 shares, or 77.48{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}, for a remaining holding of 34,195 shares. The trade impacted the equity portfolio by -0.95{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}. During the quarter, shares traded for an average price of $1,685.58.

Based in Mountain View, California, Alphabet is a multinational conglomerate that was formed as part of a restructuring of Google in 2015, in which Alphabet became the parent company of Google and several former Google subsidiaries.

On Feb. 12, shares of Alphabet traded around $2,095.03 for a market cap of $1.41 trillion and a price-earnings ratio of 35.68. According to the GuruFocus Value chart, the stock is modestly overvalued.

The company has a financial strength rating of 8 out of 10 and a profitability rating of 9 out of 10. The interest coverage ratio of 305.36 and Altman Z-Score of 10.94 indicate a fortress-like balance sheet. The return on invested capital is consistently higher than the weighted average cost of capital, meaning the company is creating value for shareholders.

Portfolio overview

The firm established 11 new holdings during the quarter and also sold out of 15 stocks, ending the quarter with 145 common stock holdings valued at a total of $21.24 billion.

As of the quarter’s end, Diamond Hill Capital (Trades, Portfolio)’s top holdings were American International Group Inc. (NYSE:AIG) with 3.48{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of the equity portfolio, Abbott Laboratories (NYSE:ABT) with 3.04{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} and Berkshire Hathaway Inc. Class B shares (NYSE:BRK.B) with 2.84{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}. In terms of sector weighting, the firm was most invested in financial services, consumer cyclical and consumer defensive.

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.

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