We recently compiled a list of the Diamond Hill Capital’s Top 10 Stock Picks. In this article, we are going to take a look at where Abbott Laboratories (NYSE:ABT) stands against Diamond Hill Capital’s other stock picks.
Heather Brilliant’s Diamond Hill Capital is a Columbus, Ohio-based investment management firm founded in 1997 by Ric Dillon, who managed the company until 2019. Mr. Dillon and several members of his team broke off to form VELA Investment Management that year, which led to the addition of Heather Brilliant to the CEO position at Diamond Hill.
Ms. Brilliant earned an MBA from the University of Chicago Booth School of Business, as well as a degree in economics from Northwestern University. She has since accrued more than two decades of experience in the domestic and international investment markets, including nearly 14 years at Morningstar that culminated in her managing the company’s Australasia division, as well as a successful run as CEO, Americas at First State Investments.
Ms. Brilliant has taken major strides to refocus Diamond Hill in her five years at the helm of the company, closing its private asset management division and several of its investment strategies that didn’t align with the fund’s core value investing ethos. Meanwhile, the fund has bulked up its focus on long-term value and fixed income investing by reworking and growing its teams in those disciplines, and adjusting its operational processes and expectations.
In a November interview on Bloomberg’s The Close, Ms. Brilliant noted that in the current environment of earnings volatility, her team is focused on uncovering high-quality businesses trading at fair valuations. When asked about her team’s approach to investing in broader sectors experiencing secular tailwinds, specifically the utilities sector, Ms. Brilliant said that while the “story” of power-hungry AI is a good one, she was unconvinced by the valuations in the space, noting that she instead likes some of the pricing trends in the insurance space.
That was evidenced by the fund’s large-cap strategy (Q3 investor letter here) adding two big insurance names to its portfolio in Q3, a quarter in which the fund returned 7.84% net of fees, beating the benchmark Russell 1000 Index by 1.76 percentage points. That lifted its year-to-date returns to 14.7% net of fees, ahead of last year’s 13.7% return. The large-cap strategy returned 25.7% in 2021 and 32.2% in 2019.
The Diamond Hill Small Cap Fund (Q3 2024 investor letter here) also added some insurance names to its portfolio during Q3 and rattled off a solid quarter of 8.43% gains, though that trailed the benchmark Russell 2000 Index by 84 basis points. The fund has returned just under 10% annually since inception, beating the Russell 2000 by nearly 200 basis points.
There’s been relatively little volatility in Diamond Hill’s overall sector allocations over the past year, with finance stocks continuing to account for nearly a quarter of the fund’s 13F portfolio, which was valued at $24.7 billion on September 30, up from $23.4 billion at the end of June. Consumer discretionary, healthcare, and industrials stocks were next at 15.9%, 14.1%, and 13.7% exposure respectively. Tech stocks rounded out the fund’s top 5 sectors at 8.6% exposure.
Our Methodology
The following data is gathered from Diamond Hill Capital’s latest 13F filing with the SEC.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here). That’s why you should pay close attention to this important indicator.
Note: All hedge fund data is based on the exclusive group of 900+ active funds tracked by Insider Monkey that filed 13Fs for the Q3 2024 reporting period.
An operating room with a doctor monitoring a patient’s vital signs during surgery with a medical device.
Abbott Laboratories (NYSE:ABT)
Value of Diamond Hill Capital’s 13F Position (9/30/2024): $762 million
Number of Hedge Fund Shareholders (9/30/2024): 64
Abbott Laboratories (NYSE:ABT) has been one of Diamond Hill’s major holdings dating all the way back to 2014, and has featured as the fund’s top stock pick on multiple occasions. The fund raised its stake in Abbott by 9% during Q3, with the holding jumping from 4th to 2nd among its top stock picks as a result.
Abbott Laboratories (NYSE:ABT) has an extensive portfolio of medical devices and diagnostic tests that are relied upon for conditions both severe and relatively benign. The company has exhibited strong overall growth despite the continued decline in sales of its Covid-19 testing kits, with organic sales growing by 8.2% year-over-year in the third quarter when excluding that unit. Overall revenue rose by 4.9% during the quarter to $10.6 billion.
Despite its standing as a Dividend King, Abbott has not skimped in the slightest when it comes to further growing its dividend payments to shareholders. It recently raised its quarterly payout by another 7.3% to $0.59 per share, pushing its overall dividend growth to 60% since 2020. Barclay’s expects the company’s earnings to grow by about 11% annually between 2024 and 2026, excluding the small contribution from the Covid unit, so Abbott should have no difficulty covering the increased payouts to shareholders.
The Diamond Hill Select Strategy discussed why it likes Abbott Laboratories (NYSE:ABT) in the fund’s Q2 2024 investor letter:
“Abbott Laboratories (NYSE:ABT) is a diversified health care company with an extensive portfolio that spans medical devices, pharmaceuticals, nutritionals and diagnostics. With a substantial portion of its revenues generated internationally, emerging markets contribute about 40% of overall sales. We have always liked Abbott’s diverse mix of businesses and its fundamental growth prospects. The management team has consistently demonstrated skill in capital allocation, highlighted by strategic divestitures such as the European generic business in 2014, and significant acquisitions like St. Jude in 2016.”
Overall ABT ranks 2nd on our list of Diamond Hill Capital’s stock picks. While we acknowledge the potential of ABT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ABT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.