Investment Pitches

Pitch Summary:
Another new holding, multinational automotive manufacturing company, Stellantis N.V. (STLA), which was formed from the merger of Fiat Chrysler Automobiles and the French PSA Group, also outperformed in the quarter on strong earnings results. The deal synergies are lowering overall operating expenses and contributing to healthy free cash flow generation. This improved liquidity has prompted company management to increase shareholder returns through dividends and share buybacks. Although some investors remain on the sidelines over concerns auto sales and margins have peaked, STLA's average transaction price is growing year-over-year. We think this momentum will continue and expect STLA to deliver double-digit operating profit margin as it further expands its leading position in the Middle East and South America. Furthermore, the company's Leapmotor joint venture presents a unique way to benefit from the strengths of Chinese original equipment manufacturers. Meanwhile, in the current electric vehicle slowdown environment, we believe STLA is best positioned to weather the storm. Management believes it can maintain profitability and is open to rationalizing its 14 brands. STLA seeks to be number one in the commercial vehicle segment by 2027, which comes with high customer stickiness, solid profitability and recurring revenue streams.

BSD Analysis:
Ariel established a new position in Stellantis, viewing the merged entity as well-positioned to capitalize on synergies from the FCA-PSA combination. The company delivered strong earnings with merger synergies reducing operating expenses and generating healthy free cash flow. Management's increased shareholder returns through dividends and buybacks demonstrates confidence in the business. Despite concerns about peak auto margins, Stellantis maintains growing average transaction prices and targets double-digit operating margins. The fund sees significant geographic expansion opportunities in the Middle East and South America. The Leapmotor joint venture provides strategic exposure to Chinese OEM capabilities, while the company's diversified brand portfolio offers resilience during the EV transition slowdown. Stellantis' commercial vehicle ambitions by 2027 should provide recurring revenue streams with high customer retention.

Pitch Summary:
New position, German-based automotive manufacturing company, Daimler Truck Holding AG (DTG), also advanced in the quarter. The market's pessimism on the overall magnitude of the industry's cyclical downturn provided us with an attractive entry point in the stock and then DTG delivered a significant earnings beat, highlighted by record margins at Mercedes-Benz, robust free cash flow generation as well as a favorable volume and margin outlook for 2024. In our view, Daimler is the highest quality truck original equipment manufacturer in the industry and we expect it to narrow the multiple gap versus competitor PACCAR. We believe the company's self-help efforts will result in higher margins throughout the cycle, improving Daimler's profitability over the medium term.

BSD Analysis:
Ariel initiated a new position in Daimler Truck, capitalizing on market pessimism about the commercial vehicle cycle to establish an attractive entry point. The company delivered a significant earnings beat with record margins at Mercedes-Benz and robust free cash flow generation. Management's favorable outlook for 2024 volume and margins provides near-term confidence. Ariel views Daimler as the highest quality truck OEM in the industry, expecting valuation multiple expansion to close the gap with competitor PACCAR. The fund believes the company's self-help initiatives will drive margin improvement throughout the cycle. This positions Daimler for enhanced profitability over the medium term, making it an attractive value play in the commercial vehicle space.

Pitch Summary:
Japanese auto manufacturer, Subaru Corporation, outperformed over the period, following healthy earnings results driven by robust demand in North America and lower raw materials prices. Subaru is also benefitting from a recovery in its global production capabilities as semiconductor chip shortages have begun to subside. We remain focused on Subaru's solid business fundamentals and view its EV roadmap as a long-term opportunity to increase market share.

BSD Analysis:
Ariel maintains a bullish stance on Subaru Corporation, highlighting the company's strong quarterly performance driven by robust North American demand and declining raw material costs. The fund emphasizes Subaru's recovery in global production capabilities as semiconductor shortages ease, which should support volume growth. Management views the company's solid business fundamentals as a key strength in the current environment. The fund sees Subaru's electric vehicle roadmap as a significant long-term catalyst for market share expansion. With improving operational conditions and strategic positioning in the EV transition, Subaru appears well-positioned for sustained growth. The combination of near-term operational improvements and long-term strategic opportunities supports the fund's positive outlook.

BSD Analysis:
Ariel repurchased J.M. Smucker following market weakness related to the Hostess acquisition, viewing this as an attractive re-entry opportunity. The manager's thesis centers on the enduring value of iconic consumer brands that generate consistent returns through stable demand patterns. The fund highlights management's successful navigation of inflationary pressures through disciplined pricing strategies that have protected margins. Ariel appreciates SJM's strong free cash flow generation, which provides flexibility for both growth investments and shareholder returns. The company's balanced capital allocation approach between business expansion, brand investment, M&A, and shareholder returns demonstrates strategic discipline. The manager views the market's negative reaction to the Hostess acquisition as an overreaction that created value. This defensive consumer staples play offers stability and consistent cash generation in an uncertain macro environment.

BSD Analysis:
Ariel initiated a position in Core Laboratories based on a compelling value opportunity created by near-term operational challenges. The manager views the current difficult operating environment and geopolitical tensions as temporary headwinds that have created an attractive entry point. The fund appreciates management's proactive approach to cost reduction and debt reduction, which should help achieve free cash flow targets. Ariel's long-term thesis centers on the asset-light business model's ability to deliver growth in reservoir description services as current challenges abate. The market's focus on short-term disruptions allowed the fund to purchase shares at a substantial discount to private market value. The attractive forward earnings multiple suggests significant upside potential as operational conditions normalize. This contrarian investment approach aligns with Ariel's value philosophy of buying quality businesses during temporary setbacks.

Pitch Summary:
Additionally, supplier of residential thermal, comfort and security solutions, Resideo Technologies, Inc. (REZI) advanced following a top- and bottom-line quarterly earnings beat. Despite a challenging macro environment and slower turnover in the housing market, stabilizing order rates and gross margin expansion aided share price appreciation. Additionally, management continues to return capital to shareholders through buybacks. In our view, the company's best-in-class brand and vast distribution network create a narrow moat around the business resulting in high market share across its product portfolio. We believe REZI's earnings potential is underappreciated and will be driven by a secular preference for more connected smart home solutions.

BSD Analysis:
Ariel's bullish stance on Resideo is built on the company's strong competitive positioning and secular growth opportunities in smart home technology. The manager emphasizes REZI's ability to deliver earnings beats despite challenging housing market conditions, highlighting operational excellence and margin expansion capabilities. The fund views the company's brand strength and extensive distribution network as key competitive advantages that create barriers to entry. Ariel believes the market underappreciates REZI's earnings potential, suggesting significant upside opportunity. The secular shift toward connected smart home solutions represents a long-term growth driver that should benefit the company's product portfolio. Management's commitment to capital returns through buybacks demonstrates confidence in the business model. The stabilizing order rates indicate potential inflection in demand trends despite macro headwinds.

Pitch Summary:
Manufacturer of premium fuel and electrical systems, Phinia Inc. (PHIN) also traded up in the period on solid earnings results and a positive full year 2024 outlook. Healthy consumer pricing, new business wins across all end markets, ongoing weakness in electric vehicles, growth in light vehicle original equipment and strong cost controls, more than offset disappointing commercial vehicle sales in China. Meanwhile, management continues to prioritize capital returns to shareholders via buybacks and dividends. Looking ahead, we expect PHIN to deliver sustainable, profitable growth and significant cash generation as it captures operational efficiencies, exits agreements with its former parent company BorgWarner Inc. and also expands its industrial and aftermarket customer base.

BSD Analysis:
Ariel's investment thesis for Phinia centers on the company's strong operational execution and favorable positioning within the automotive supply chain. The manager highlights PHIN's ability to deliver solid earnings despite mixed end-market conditions, demonstrating operational resilience and pricing power. The fund views the ongoing weakness in electric vehicles as a tailwind for traditional fuel system suppliers like Phinia. Management's focus on capital allocation through buybacks and dividends signals confidence in cash generation capabilities. Ariel expects sustainable growth driven by operational efficiencies as the company completes its separation from former parent BorgWarner. The expansion into industrial and aftermarket segments provides diversification and growth opportunities. The manager's positive outlook suggests PHIN is well-positioned to benefit from the continued dominance of internal combustion engines in the near term.

Pitch Summary:
Manufacturer and distributor of floorcovering products, Mohawk Industries Inc. (MHK) advanced during the quarter. Although consumer demand and pricing remains muted due to a challenging macro backdrop, cost savings and productivity initiatives, along with lower input costs more than offset these difficulties. In our view, MHK's healthy balance sheet and success managing through economic cycles position the company to benefit from long-term growth in residential remodeling, new home construction and commercial projects. At current levels, MHK is trading at compelling discount to our estimate of private market value.

BSD Analysis:
Ariel presents a compelling value thesis for Mohawk Industries, emphasizing the company's operational resilience during challenging market conditions. The manager highlights MHK's ability to offset weak consumer demand through effective cost management and productivity improvements, demonstrating strong operational discipline. The fund views the company's proven track record of navigating economic cycles as a key competitive advantage that positions it well for future growth. Ariel sees significant upside potential in residential remodeling, new home construction, and commercial projects as macro conditions improve. The manager's emphasis on MHK's healthy balance sheet suggests financial stability during the current downturn. The assessment that shares trade at a compelling discount to private market value indicates substantial undervaluation. This value-oriented approach aligns with Ariel's investment philosophy of identifying quality companies trading below intrinsic worth.

Pitch Summary:
Perrigo is the largest manufacturer of over-the-counter (OTC) consumer health care products — selling more acetaminophen than Tylenol and more ibuprofen than Motrin and Advil. With this scale comes immense manufacturing and regulatory complexity that is inherent to the company's business model, giving it a unique competitive advantage. We believe the current share price offers an attractive risk/reward proposition and capitalized on the opportunity to establish a position.

BSD Analysis:
Diamond Hill initiated a position in Perrigo based on the company's dominant scale in over-the-counter pharmaceutical manufacturing and the competitive advantages this creates. The manager highlights Perrigo's impressive market position, producing more acetaminophen than Tylenol and more ibuprofen than major branded competitors, demonstrating significant manufacturing scale and market penetration. The investment thesis centers on the regulatory and manufacturing complexity inherent in OTC pharmaceutical production, which creates substantial barriers to entry and competitive moats. This complexity requires specialized expertise, regulatory compliance capabilities, and manufacturing scale that few competitors can replicate effectively. The fund views current valuation levels as attractive relative to the company's market position and competitive advantages. Perrigo's role as a leading private-label manufacturer for major retailers provides stable, recurring revenue streams while its scale advantages enable cost leadership. The combination of defensive healthcare demand, competitive moats through operational complexity, and attractive valuation following recent weakness creates a compelling investment opportunity with favorable risk-adjusted return potential.

Pitch Summary:
Generac Holdings is a leading energy technology solutions manufacturer with a dominant position in residential home standby power. With its strong position in home standby and diverse energy solutions offerings, Generac is well-positioned for growth moving forward as increasing electricity usage and electrical grid instability drive demand for its products. Shares have been pressured over the last couple years as the company has faced inventory-related headwinds and soft near-term demand — giving us an opportunity to initiate a position at what we believe is a compelling discount to intrinsic value.

BSD Analysis:
Diamond Hill initiated a new position in Generac Holdings, viewing recent share price weakness as an attractive entry opportunity for a market-leading energy solutions company. The manager emphasizes Generac's dominant position in residential standby power generation, which provides defensive characteristics and recurring revenue through maintenance services. The investment thesis centers on two key demand drivers: increasing electricity consumption and growing electrical grid instability, both of which should sustain long-term demand for backup power solutions. Recent inventory challenges and soft demand have created temporary headwinds, allowing Diamond Hill to establish a position at what they view as a significant discount to intrinsic value. The company's diversified energy solutions portfolio beyond residential standby power provides additional growth vectors and reduces dependence on any single market segment. Generac's market leadership position and brand recognition create competitive advantages in the fragmented power generation market. The combination of defensive demand characteristics, secular growth drivers, and attractive valuation following recent weakness creates a compelling risk-adjusted investment opportunity.

Pitch Summary:
Shares of India-based business process management company WNS Holdings declined in the wake of a large client's decision to part ways with WNS. Though the decision was unrelated to artificial intelligence (AI), the move renewed concerns about how AI will ultimately affect the company. However, we believe WNS's business process management solutions and its ability to implement AI capabilities on clients' behalf are more valuable than is currently reflected in the share price, and we continue to believe the outlook from here is favorable.

BSD Analysis:
Diamond Hill views the recent decline in WNS Holdings as an overreaction to client-specific issues rather than fundamental business deterioration. The manager clarifies that a large client departure was unrelated to AI disruption, though it reignited broader market concerns about AI's impact on business process outsourcing. The fund believes WNS is well-positioned to leverage AI as an enabler rather than a disruptor, emphasizing the company's ability to implement AI capabilities for clients as a competitive advantage. This positions WNS as a solution provider rather than a victim of technological change. The manager's conviction in favorable long-term prospects suggests confidence in WNS's ability to adapt its service offerings and maintain client relationships despite technological evolution. The current share price appears to reflect excessive pessimism about AI disruption while undervaluing WNS's technological capabilities and client implementation expertise. Diamond Hill's maintained position indicates belief that the market misunderstands WNS's strategic positioning in an AI-enhanced business process management landscape.

Pitch Summary:
Leading industrial distributor WESCO (WCC) has experienced choppier results as the initial benefits from its Anixter merger have moderated and a cyclical showdown has highlighted some execution missteps. However, we believe that over the long term, WCC can leverage its significant scale to take market share and improve margins. The company is also well-positioned to benefit from several secular tailwinds, including electrification and re-shoring, among others.

BSD Analysis:
Diamond Hill maintains a long-term bullish view on WESCO International despite acknowledging near-term operational challenges following the Anixter merger integration. The manager recognizes that initial merger synergies have moderated and cyclical headwinds have exposed some execution issues, creating temporary performance volatility. However, the fund emphasizes WESCO's significant scale advantages that should enable market share gains and margin improvement over time. The investment thesis centers on the company's positioning to benefit from major secular trends including electrification initiatives and manufacturing re-shoring, which should drive sustained demand for electrical and industrial distribution services. WESCO's comprehensive distribution network and broad product portfolio provide competitive advantages in serving these growing end markets. The manager's long-term perspective suggests confidence that current operational challenges are temporary and that the company's scale and market position will ultimately drive superior returns. The combination of defensive distribution characteristics and exposure to high-growth secular themes creates an attractive risk-adjusted opportunity.

Pitch Summary:
Engineered power transmission and fluid power solutions manufacturer Gates Industrial Corporation faced meaningful supply chain-related constraints following the pandemic, including a severe resin shortage. Since then, management has seemingly found effective raw materials substitutes, giving a boost to shares. We expect the company to benefit from its meaningful operating leverage should revenue growth rebound in the back half of the year.

BSD Analysis:
Diamond Hill presents a recovery story for Gates Industrial Corporation following successful resolution of pandemic-related supply chain challenges. The manager highlights management's effective response to severe resin shortages through identification of alternative raw materials, demonstrating operational adaptability and problem-solving capabilities. This supply chain stabilization has already provided positive momentum for the stock. The fund emphasizes Gates' significant operating leverage, which should amplify earnings growth when revenue recovery materializes in the latter half of 2024. The company's engineered power transmission and fluid power solutions serve essential industrial applications, providing defensive demand characteristics. Gates' ability to navigate supply chain disruptions while maintaining product quality suggests strong operational management and supplier relationships. The anticipated revenue rebound combined with high operating leverage creates an attractive earnings acceleration scenario. Diamond Hill's positioning ahead of expected revenue recovery indicates confidence in both the timing and magnitude of the operational turnaround.

Pitch Summary:
Food products manager Post Holdings is making progress with its Smucker pet foods acquisition — which we believe provides the company an underappreciated opportunity to capitalize on undermanaged brands. Engineered power transmission and fluid power solutions manufacturer Gates Industrial Corporation faced meaningful supply chain-related constraints following the pandemic, including a severe resin shortage. Since then, management has seemingly found effective raw materials substitutes, giving a boost to shares. We expect the company to benefit from its meaningful operating leverage should revenue growth rebound in the back half of the year.

BSD Analysis:
Diamond Hill views Post Holdings favorably based on the strategic value of its Smucker pet foods acquisition, which the manager believes offers significant untapped potential through better brand management. The fund sees an underappreciated opportunity to revitalize and grow undermanaged pet food brands within Post's portfolio, leveraging the company's operational expertise and distribution capabilities. This acquisition appears to align with Post's strategy of acquiring and optimizing consumer brands across various food categories. The pet food market's attractive growth characteristics and Post's proven ability to enhance brand performance through operational improvements create a compelling value creation opportunity. The manager's confidence in Post's ability to capitalize on undermanaged brands suggests the acquisition was completed at an attractive valuation with clear improvement pathways. Post's diversified portfolio across multiple food categories provides stability while the pet foods acquisition offers incremental growth potential. The combination of defensive food categories and growth opportunities positions Post well for sustained value creation.

Pitch Summary:
Sales of packaged food products manufacturer Lancaster Colony Corporation's licensed sauces — particularly its Chick-fil-A and Olive Garden brands — grew nicely in the quarter, contributing to solid top-line growth and gross margin improvement. We believe the company is well-managed with a long-term plan for growth which is focused on controlling costs via efficient supply chain management while maintaining and growing its leading positions in six retail food categories.

BSD Analysis:
Diamond Hill maintains a positive outlook on Lancaster Colony based on strong performance from its licensed sauce portfolio, particularly premium brands like Chick-fil-A and Olive Garden. The manager highlights solid revenue growth and gross margin expansion driven by these high-quality licensed products, which likely command premium pricing and strong consumer loyalty. The fund emphasizes management's strategic focus on operational efficiency through supply chain optimization while defending market-leading positions across six retail food categories. This diversified category presence provides defensive characteristics and multiple growth vectors. The licensing strategy with established restaurant brands creates a competitive moat through brand recognition and quality association. Lancaster Colony's ability to simultaneously grow revenues and expand margins demonstrates effective pricing power and cost management. The company's long-term growth plan appears well-structured around operational excellence and category leadership, positioning it favorably in the competitive packaged foods market.

Pitch Summary:
Designer and manufacturer of industrial powertrain solutions, power transmission components and other specialty electronics Regal Rexnord is capitalizing on merger synergies and its commitment to focusing on its most productive areas to improve margins and drive organic growth faster than peers. While the company's leverage is somewhat elevated, possibly exposing it to any macroeconomic weakness, recent strong free cash flow generation has helped it make progress deleveraging. We believe Regal Rexnord remains well-positioned to benefit from secular tailwinds such as the increased focus on energy efficiency, automation, re-shoring and electrification in the period ahead.

BSD Analysis:
Diamond Hill presents a bullish case for Regal Rexnord based on successful merger integration and strategic focus on high-margin business segments. The manager emphasizes the company's ability to capitalize on merger synergies while driving organic growth above industry peers through operational improvements. Despite acknowledging elevated leverage as a potential risk during economic downturns, the fund highlights strong free cash flow generation that supports deleveraging efforts. The investment thesis centers on multiple secular growth drivers including energy efficiency trends, industrial automation, manufacturing re-shoring, and electrification initiatives. These macro themes should provide sustained demand for Regal Rexnord's industrial powertrain and power transmission solutions. The company's focus on its most productive business areas suggests disciplined capital allocation and margin expansion potential. Diamond Hill views the combination of operational improvements and favorable end-market trends as compelling drivers for long-term value creation.

Pitch Summary:
Local casino operator Red Rock Resorts delivered a strong opening for its new Durango Casino & Resort in Q1. Importantly, the new resort didn't seem to cannibalize results from the rest of the company's portfolio. We maintain our conviction in the underlying fundamentals and believe the current valuation remains attractive.

BSD Analysis:
Diamond Hill maintains a bullish stance on Red Rock Resorts following the successful launch of its new Durango Casino & Resort in Q1 2024. The manager highlights that the new property achieved strong opening results without cannibalizing revenue from existing properties, demonstrating effective market expansion rather than internal competition. This suggests strong local market demand and effective site selection. The fund emphasizes continued conviction in the company's underlying fundamentals while viewing current valuation levels as attractive. Red Rock's focus on the Las Vegas local market provides defensive characteristics compared to tourist-dependent operators. The successful non-cannibalistic expansion indicates potential for continued growth through strategic property development. Diamond Hill's maintained position suggests confidence in the company's operational execution and market positioning.

Pitch Summary:
Zoetis detracted from portfolio performance in the quarter, despite a solid U.S. launch of Librela, a drug to treat osteoarthritis in dogs, in the U.S. Management addressed safety concerns on Librela, citing extremely low incidences of Ataxia in dogs. We believe that concerns about these safety issues negatively impacted Zoetis in the quarter. Shares now trade at a discount to five-year average valuation multiples and continue to benefit from increase pet ownership and increasing protein demand in the company's livestock business.

BSD Analysis:
Aristotle Atlantic views Zoetis' Q1 weakness as a temporary setback rather than a fundamental concern. While safety concerns around Librela (osteoarthritis treatment for dogs) weighed on sentiment, management's data showing extremely low incidences of Ataxia suggests these fears may be overblown. The fund highlights the successful U.S. launch of Librela as a positive development for the companion animal segment. More importantly, the manager emphasizes two secular tailwinds supporting long-term growth: increasing pet ownership trends and rising global protein demand driving livestock business expansion. With shares trading below five-year average valuation multiples, the fund appears to view current levels as attractive entry points. This contrarian stance reflects confidence in Zoetis' market-leading position in animal health, diversified revenue streams across companion animals and livestock, and the defensive characteristics of the veterinary pharmaceutical market.

Pitch Summary:
Darling Ingredients detracted from portfolio performance in the quarter, as shares were weak following an in-line quarterly earnings report in which Darling refrained from providing full-year guidance due to low fat prices and its view that fat prices had bottomed. Rather than attempting to predict where fat prices might go during the year, management explained that it wanted to wait until the first quarter earnings call to provide more color. The company did talk about a soft floor for EBITDA in the $1.45 billion to $1.55 billion range for the year should fat prices remain depressed. Darling Ingredients remains confident in the discussions it is having with global cargo and passenger air carriers about takeaway agreements for its planned sustainable aviation fuel production, and any announcement could prove to be a catalyst given the depressed valuation currently. We believe shares should re-rate as investors gain confidence in the long-term cashflow generation ability of the company's unique assets.

BSD Analysis:
Despite near-term headwinds, Aristotle Atlantic maintains conviction in Darling Ingredients' long-term value proposition. The fund acknowledges current challenges from depressed fat prices, which pressured Q1 performance and led management to withhold full-year guidance. However, the manager views the $1.45-1.55 billion EBITDA floor as providing downside protection. The key catalyst lies in Darling's sustainable aviation fuel (SAF) initiatives, with ongoing discussions with global airlines for takeaway agreements representing significant upside potential. The fund emphasizes the company's unique asset base and cash flow generation capabilities, suggesting current valuations don't reflect the long-term earnings power. This contrarian position reflects confidence in the renewable fuels transition and Darling's strategic positioning in converting waste products into high-value sustainable fuels. The manager appears to view current weakness as a buying opportunity ahead of potential SAF contract announcements.

Pitch Summary:
Nvidia contributed to portfolio performance in the first quarter, as the company continues to see accelerating demand for its GPU semiconductors from hyperscalers and enterprises. Nvidia's GPU semiconductors continue to be the industry-leading building blocks of the accelerated computing data-center architecture to drive AI compute and applications.

BSD Analysis:
Aristotle Atlantic maintains a bullish stance on Nvidia, highlighting the company's dominant position in AI infrastructure. The fund emphasizes Nvidia's accelerating demand from hyperscalers and enterprises for GPU semiconductors, which serve as critical building blocks for AI compute applications. The manager views Nvidia's technology as industry-leading in accelerated computing data-center architecture. This positioning aligns with the broader AI transformation trend, where Nvidia's specialized chips are essential for training and deploying large language models and other AI applications. The fund's positive attribution from Nvidia during Q1 2024 reflects the market's recognition of the company's strategic importance in the AI ecosystem. However, the brief commentary suggests the fund may be taking profits or maintaining a measured position size given the stock's significant appreciation.