Ric Dillon and Diamond Hill Capital’s Stock Picks for 2013

Dillon and his team kept their stake in United Technologies Corporation (NYSE:UTX) about constant, with 3.1 million shares in their portfolio at the beginning of 2013. The $80 billion market cap industrial technology company whose businesses include Otis and Pratt & Whitney had an excellent fourth quarter; sales rose 10%, and earnings growth was even higher as margins swelled. Billionaire Dan Loeb’s Third Point owed 1.6 million shares of United Technologies at the end of September (research more stocks Loeb likes). The stock carries trailing and forward P/E multiples of 16 and 13, respectively, and given its recent growth rates it might be worth investigating as well.

JPMorgan Chase & Co. (NYSE:JPM) was another of Diamond Hill’s favorite stocks with the fund owning 5.6 million shares. The bank looks like a good value in terms of both book value (the current P/B of 0.9 indicates a small discount) and earnings (the trailing P/E is 9). At those prices, JPMorgan Chase would have to be struggling in order to be fairly valued- yet it experienced strong results last quarter with revenue up 19% and net income rising 53%. We recently reported on an insider purchase at JPMorgan Chase, which could be added to a bullish case for the stock (read more about the insider purchase and our thoughts on the company).

Fellow big bank Citigroup Inc. (NYSE:C) rounded out Dillon’s top stock picks. Citi joined JPMorgan Chase in our rankings of the ten most popular stocks among hedge funds in the third quarter of 2012 (see the full top ten list). There is a case to be made that Citi is cheaper than JPMorgan Chase, seeing as it is priced at a similar multiple of 2013 earnings but at only about 70% of its book value, but we see the bank as less stable. It may merit that discount, though at least in the fourth quarter of 2012 it reported good results. With large banks seeming generally cheap, there’s no reason an investor couldn’t consider it as well as its peers.

Disclosure: I own no shares of any stocks mentioned in this article.