10 Best Stocks to Buy According to Ric Dillon’s Diamond Hill Capital

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In this article, we will discuss 10 best stocks to buy according to Ric Dillon’s Diamond Hill Capital based on Q1 holdings of the fund. If you want to skip our detailed analysis of Dillon’s history, investment philosophy, and hedge fund performance, go directly to the 5 Best Stocks to Buy According to Ric Dillon’s Diamond Hill Capital.

Ric Dillon, CFA, is the portfolio manager, and chief executive officer at Diamond Hill Capital. He worked as a portfolio manager at Loomis Sayles & Co., a financial advising business, from 1997 until 2000. Mr. Dillon was the president and managing director of Dillon Capital Management, an investment advisory hedge fund, from 1993 to 1997. He holds a bachelor’s degree in finance, a master’s degree in education, and an MBA from Dayton.

The investing strategy of Diamond Hill Capital is mostly based on a bottom-up approach. The hedge fund determines intrinsic value using a unique Diamond Hill Capital Model that considers: normalized earnings and growth rate, payout ratio and dividends, terminal earnings multiple, and required rate of return. 

As of the second quarter of 2021, Diamond Hill Capital has stakes in several big companies like Microsoft Corporation (NASDAQ: MSFT), Alphabet Inc. (NASDAQ: GOOG), and Facebook, Inc. (NASDAQ: FB).

Based on the latest 13F holdings for the second quarter of 2021, Diamond Hill Capital owns 173,817 shares in Microsoft Corporation (NASDAQ: MSFT) worth $47.09 million. On August 10, Microsoft Corporation (NASDAQ: MSFT) purchased Peer5 to improve its ability to deliver secure, fine-quality, large-scale live video streaming with optimum network performance in Teams. On July 28, JPMorgan analyst Mark Murphy raised the price target on Microsoft Corporation (NASDAQ: MSFT) to $310 from $300 and kept an “Overweight” rating on the shares.

In Alphabet Inc. (NASDAQ: GOOG), Ric Dillon owns 26,170 shares. The investment covers 0.24% of the fund’s portfolio. On July 28, Wedbush analyst Michael Pachter raised the price target on Alphabet Inc. (NASDAQ: GOOG) to $3,424 from $3,127 and kept an “Outperform” rating on the shares. 

Another notable stock in Ric Dillon’s portfolio is Facebook, Inc. (NASDAQ: FB). The investor owns a $595 million stake in the company. On August 13, Facebook, Inc. (NASDAQ: FB) announced end-to-end encryption for audio and video conversations on Messenger, adding another layer of security to the company’s extensively used messaging tool. On July 29, Truist analyst Youssef Squali raised the price target on Facebook, Inc. (NASDAQ: FB) to $425 from $400 and maintained a “Buy” rating on the shares.

Ric Dillon of Diamond Hill Capital

Why should we follow Dillon’s stock picks? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Keeping all these points in mind, let’s start our list of the 10 best stocks to buy according to Ric Dillon’s Diamond Hill Capital. We used Dillon’s 13F portfolio for the second quarter for this analysis.

Best Stocks to Buy According to Ric Dillon’s Diamond Hill Capital

10. Medtronic plc (NYSE: MDT)

Dillon’s Stake Value: $571,104,000
Percentage of Ric Dillon’s 13F Portfolio: 2.16%
Number of Hedge Fund Holders: 68

Medtronic plc (NYSE: MDT) is a device-based medical therapy company that develops, produces, distributes, and sells its products to hospitals, physicians, clinicians, and patients globally. The company was incorporated in 1949 and is placed tenth on the list of 10 best stocks to buy according to Ric Dillon’s Diamond Hill Capital. Medtronic plc (NYSE: MDT) has a market capitalization of $174.16 billion and was able to deliver a 27.87% return in the past 12 months.

On August 6, Medtronic plc (NYSE: MDT) announced that it has agreed to buy Intersect ENT, Inc. (NASDAQ: XENT) in an all-cash deal for $1.1 billion, including debt. On June 10, Cowen analyst Joshua Jennings initiated coverage of Medtronic plc (NYSE: MDT) with an “Outperform” rating and gave a price target of $141.

Ric Dillon’s Diamond Hill Capital currently holds 4.60 million shares of Medtronic plc (NYSE: MDT) that amount to $571.10 million. The company occupies 2.16% of Diamond Hill Capital’s total portfolio. Medtronic plc (NYSE: MDT) saw an increase in hedge fund sentiment recently. The number of hedge fund positions increased to 68 at the end of the second quarter of 2021, compared to 68 hedge funds in the previous quarter.

Just like Microsoft Corporation (NASDAQ: MSFT), Alphabet Inc. (NASDAQ: GOOG), and Facebook, Inc. (NASDAQ: FB), Medtronic plc (NYSE: MDT) is one of the best stocks according to Ric Dillon’s Diamond Hill Capital. 

9. NVR, Inc. (NYSE: NVR)

Dillon’s Stake Value: $589,659,000
Percentage of Ric Dillon’s 13F Portfolio: 2.23%
Number of Hedge Fund Holders: 28

NVR, Inc. (NYSE: NVR) is a residential building firm in the United States. The company was incorporated in 1980 and ranks ninth on the list of 10 best stocks to buy according to Ric Dillon’s Diamond Hill Capital. NVR, Inc. (NYSE: NVR) shares have offered investors returns exceeding 22% over the course of the past 12 months.

On July 21, NVR, Inc. (NYSE: NVR) reported earnings for the second quarter of 2021. It declared earnings per share of $82.45, beating the market predictions by $7.74. In addition, revenue for the second quarter was $2.22 billion, up 55.5% year over year, beating the estimates by $10 million. Out of the hedge funds being tracked by Insider Monkey, Diamond Hill Capital is a leading shareholder in NVR, Inc. (NYSE: NVR), with 118,565 shares worth more than $589 million. 

Just like Microsoft Corporation (NASDAQ: MSFT), Alphabet Inc. (NASDAQ: GOOG), and Facebook, Inc. (NASDAQ: FB), NVR, Inc. (NYSE: NVR) is one of the best stocks according to Ric Dillon’s Diamond Hill Capital. 

In its second-quarter 2021 investor letter Black Bear Value Partners mentioned NVR, Inc. (NYSE: NVR). Here is what the fund said:

“I would point you to our Q1 letter to read our discussion of NVR. We own 3 homebuilding related names which comprise a healthy chunk of the portfolio. Given the concentrated nature of the portfolio I am going to keep the names of the remaining 2 companies out of this discussion. 2 of the 3 companies are homebuilders while the 3rd is in an adjacent business line supplying the homebuilding industry….”(Click here to see the full text)

8. Facebook, Inc. (NASDAQ: FB)

Dillon’s Stake Value: $595,619,000
Percentage of Ric Dillon’s 13F Portfolio: 2.26%
Number of Hedge Fund Holders: 266

Facebook, Inc. (NASDAQ: FB) is a worldwide technology company based in the United States. The company was founded in 2004 and is placed eighth on the list of 10 best stocks to buy according to Ric Dillon’s Diamond Hill Capital. Facebook, Inc. (NASDAQ: FB) currently has a $1.03 trillion market capitalization. It delivered a 38.11% return in the past 12 months.

On July 28, Facebook, Inc. (NASDAQ: FB) declared earnings for the second quarter of 2021. It posted earnings per share of $3.61, surpassing the predictions by $0.61. In addition, revenue over the period was $29.07 billion, up 55.5% YoY, beating the estimates by $1.18 billion.

Diamond Hill Capital holds more than 1.71 million shares in Facebook, Inc. (NASDAQ: FB), worth over $595 million, representing 2.26% of their portfolio. The hedge fund has increased stakes in the firm by 8% in the second quarter of 2021. Overall, hedge funds are loading up on Facebook, Inc. (NASDAQ: FB), as 266 out of 871 funds tracked by Insider Monkey held stakes in the company in the second quarter of 2021, compared to 257 funds a quarter earlier. Based on our calculations, Facebook, Inc. (NASDAQ: FB) ranks 2nd in our list of the 30 Most Popular Stocks Among Hedge Funds.

Just like Microsoft Corporation (NASDAQ: MSFT) and Alphabet Inc. (NASDAQ: GOOG), Facebook, Inc. (NASDAQ: FB) is one of the best stocks according to Ric Dillon’s Diamond Hill Capital. 

SaltLight Capital Management, in its second-quarter 2021 investor letter, mentioned Facebook, Inc. (NASDAQ: FB). Here is what the fund said: 

“At SaltLight, we’re giddy with excitement when we uncover businesses that the market has not “discovered” yet. Our composure also weakens when we find a business that is ‘hiding in plain sight’ and market participants are underestimating the duration of a moat or under-appreciating a strategic shift into a new business (our heart skipped a beat with Transaction Capital’s recent acquisition of WeBuyCars)….”(Click here to see the full text)

7. Mondelez International, Inc. (NASDAQ: MDLZ)

Dillon’s Stake Value: $598,139,000
Percentage of Ric Dillon’s 13F Portfolio: 2.27%
Number of Hedge Fund Holders: 53

Mondelez International, Inc. (NASDAQ: MDLZ) manufactures, markets, and sells snack food and beverage products worldwide through its subsidiaries. It was incorporated in 2000 and is placed seventh on the list of 10 best stocks to buy according to Ric Dillon’s Diamond Hill Capital. Mondelez International, Inc. (NASDAQ: MDLZ) currently has an $89.03 billion market capitalization. 

On July 30, Goldman Sachs analyst Jason English removed Mondelez International, Inc. (NASDAQ: MDLZ) from the firm’s Conviction List but reiterated a “Buy” rating on the shares with a price target of $71, up from $70. According to the analyst, the food category would be impacted by industry-wide cost constraints and the potential for lower volumes and greater promotions later this year. Nevertheless, following its second-quarter results, English feels Mondelez is well-positioned to outperform peers. On July 27, Mondelez International, Inc. (NASDAQ: MDLZ) declared a quarterly dividend of $0.35 per share, an 11.1% increase from the prior dividend of $0.32. The company also posted its earnings for the second quarter of 2021. It announced earnings per share of $0.66, beating the estimates by $0.01. 

Diamond Hill Capital holds more than 9.58 million shares in Mondelez International, Inc. (NASDAQ: MDLZ), worth over $598 million, representing 2.27% of their portfolio. Mondelez International, Inc. (NASDAQ: MDLZ) saw an increase in hedge fund sentiment recently. The number of hedge fund positions increased to 53 at the end of the second quarter of 2021 compared to 45 positions in the previous quarter.

Just like Microsoft Corporation (NASDAQ: MSFT), Alphabet Inc. (NASDAQ: GOOG), and Facebook, Inc. (NASDAQ: FB), Mondelez International, Inc. (NASDAQ: MDLZ) is one of the best stocks according to Ric Dillon’s Diamond Hill Capital. 

6. Bank of America Corporation (NYSE: BAC)

Dillon’s Stake Value: $648,109,000
Percentage of Ric Dillon’s 13F Portfolio: 2.46%
Number of Hedge Fund Holders: 87

Bank of America Corporation (NYSE: BAC) is a global investment bank and financial services corporation based in the United States. It was incorporated in 1784 and is ranked sixth on the list of 10 best stocks to buy according to Ric Dillon’s Diamond Hill Capital.

On July 27, Bank of America Corporation (NYSE: BAC) declared a quarterly dividend of $0.21 per share, a 17% increase from the prior dividend of $0.18. On July 16, CoinDesk reported that Bank of America Corporation’s (NYSE: BAC) prime brokerage business has begun clearing and settling cryptocurrency exchange-traded products for hedge funds in Europe, as interest in crypto exchange-traded products grows.

The hedge fund chaired by Ric Dillon holds close to 15 million shares in Bank of America Corporation (NYSE: BAC) worth over $648 million. Overall, hedge fund sentiment declined. The number of hedge fund positions declined to 87 at the end of the second quarter compared to 97 positions in the prior quarter.

Just like Microsoft Corporation (NASDAQ: MSFT), Alphabet Inc. (NASDAQ: GOOG), and Facebook, Inc. (NASDAQ: FB), Bank of America Corporation (NYSE: BAC) is one of the best stocks according to Ric Dillon’s Diamond Hill Capital. 

ClearBridge Investments, in its first-quarter 2021 investor letter, mentioned Bank of America Corporation (NYSE: BAC). Here is what the fund said: 

“Higher long-term interest rates supported financials such as Bank of America, which has shown both defensive and offensive characteristics in the past year. We believe it continues to be the least risky large bank from a credit standpoint, with conservative underwriting and controlled risk taking, a leading consumer deposit franchise, scale and technology. It is also a leader in its commitments to sustainability, or as it terms it, responsible growth. Disclosure and reporting at all levels form a large part of this commitment, including gender diversity and equality, environmental commitments and support of communities in which it operates. In the first quarter Bank of America announced it is setting a goal of net-zero greenhouse gas (GHG) emissions in its supply chain and operations, and notably also in its financing activities, before 2050.”

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Disclosure: None. 10 Best Stocks to Buy According to Ric Dillon’s Diamond Hill Capital is originally published on Insider Monkey.