The November 30th issue of Value Investor Insight features an interview with Chuck Bath, the founder and manager of $7.2 billion for Diamond Hill Capital Management. Bath spent the first two decades of his career at Nationwide Insurance, and he noted that it was “an ideal environment to learn fundamental value investing.”
The large-cap mutual fund Bath manages for Diamond Hill Capital Management has earned a net annualized 8.9% over the last decade, compared to 6.9% for similar funds.
Chuck Bath describes his investing strategy as “seeking companies in concentrated industries when the market appears to misprice their intact ability to methodically compound value over time,” which places him firmly in the value investor camp.
Kimberly Clark produces long-term value
Chuck Bath is not afraid to buy and hold. He’s been invested in consumer goods giant Kimberly Clark Corp (NYSE:KMB) for the last 12 years. He says the firm is a good example of the type of company he likes. Bath points to the firm’s strong brand franchises including Kleenex, Scott and Huggies, and the fact it “operates mostly in oligopolistic markets with slow, steady growth.”
He also highlights Kimberly Clark Corp (NYSE:KMB)’s strong international presence. The firm does face a tough competitor in Procter & Gamble Co (NYSE:PG), but he notes that both companies typically “act rationally to maximize long-term returns.” Finally, Bath is very enthusiastic about Kimberly Clark’s management, which he notes has a long record of reinvesting capital in the best interests of shareholders.
Chuck Bath explains why Parker Hannifin is a winner
Some of Chuck Bath’s best picks are not in the consumer or retail sectors. “Parker Hannifin is another company I’ve owned since 2002. It operates in oligopolistic, unexciting businesses, supplying things like hydraulic motion and control systems to manufacturers like Caterpillar Inc. (NYSE:CAT), Deere & Company (NYSE:DE) and Boeing Co (NYSE:BA). Because of the cyclical nature of its businesses, the stock can sell down on fears of an economic slowdown.”
Chuck Bath goes on to give a recent example of this kind of price swing. He highlighted that Parker Hannifin shares dropped from $130ish most of the summer to $103 in October for no reason besides the market was under pressure due to macroeconomic worries. Bath noted even if the concerns that caused the price decline are warranted, stock prices often overcorrect. He says: “When that happens, even high-quality names can be bought at relatively bargain prices.” Since closing at a 52-week low of $103 on October 15th, Parker Hannifin shares have been trading around $129 this week.