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Summary

  • Kahn Brothers Group's US long portfolio increased by ~20% this quarter as they increased equity exposure.
  • Kahn is bullish on BP plc, MBIA, Hologic, Seaboard, VOXX, and Nam Tai.
  • Kahn is bearish on Patterson-UTI Energy and SLM Corporation.

This article is the first in a series that provides an ongoing analysis of the changes made to Irving Kahn's US stock portfolio on a quarterly basis. It is based on Kahn Brothers & Company's regulatory 13F Form filed on 05/07/2014. Irving Kahn co-founded Kahn Brothers & Company in 1978. He was Benjamin Graham's Teaching Assistant at Columbia Business School in the 1920s and is the oldest (born 1905) among the illustrious Graham protégés.

Irving Kahn's management style is solidly in the value camp - bottom-up stock selection of undervalued equities that are usually out-of-favor due to temporary factors. Holding periods are typically well above three years and could be as long as fifteen years or more. The firm has over $700M in Assets Under Management (AUM). The portfolio is heavily concentrated among a handful of long-term positions. The recent 13F reports show over 40 individual positions but the vast majority is invested in nine stocks with each accounting for between 5% and 12% of the US long portfolio.

This quarter, Kahn's US long portfolio increased substantially from $581M to $698M. The number of holdings remained steady at 42. Several positions that saw trimming in the last quarter was built back up this quarter. The largest holding is NY Times which has been in the portfolio since 2006. It accounts for 11.69% of the US long portfolio. Largest five individual stock positions are NY Times, Pfizer Inc., Merck Inc., New York Community Bancorp, and Citigroup Inc. Together, they account for close to 50% of the US long portfolio.

New Stakes:

None.

Stake Disposals:

None.

Stake Increases:

New York Community Bancorp (NYSE:NYCB): NYCB is a top-five position that was increased by ~15% this quarter at prices between $15.35 and $17.34. The stock currently trades at $15.21. It is a very long-term position that was first purchased in 2000. The stake was built up to a large ~10% stake (over 1.4M shares) by 2003 and in 2004 the position was doubled. Since then, the stake has been kept largely steady although adjustments have occurred every year. For investors attempting to follow Kahn, NYCB is a very good option to consider for further research.

The New York Times Company (NYSE:NYT): NYT position was increased by ~12% this quarter at prices between $13.75 and $17.12. The stock currently trades near the middle of that range at $15.68. It is Kahn's largest position at ~$82M. The stake was first purchased in 2006 and the bulk of the current position was built in 2011 and 2012 at prices between $5.81 and $10.67.

Pfizer Inc. (NYSE:PFE) & Merck Inc. (NYSE:MRK): PFE & MRK are Kahn's second and third-largest positions at 9.72% and 9.17% of the US long portfolio respectively. Both these stocks were very small stakes first purchased in 2000. Most of the current position in PFE was purchased in 2007 at prices between $23 and $28. This quarter, the stake was increased by ~11% at prices between $29.66 and $32.75. The stock currently trades at around $29. MRK position has fluctuated over the years but the bulk of the current stake was purchased during the market lows of 2009 at prices between $24 and $38. The stock currently trades at $55.21.

Citigroup Inc. (NYSE:C): C is a top-five position that has been in the portfolio for more than fifteen years - it was a very small position in Kahn's first 13F filing in 1999. The minor position was adjusted over the following years although by 2006 the position still accounted for less than 0.1% of the US long portfolio. The stake was steadily increased after the financial crisis and it currently stands at 8.40% of the US long portfolio. This quarter saw a ~15% stake increase at prices between $46 and $55. The stock currently trades near the low end of that range at $47.

Old Republic International (NYSE:ORI): ORI is another very long-term position that has been in the portfolio for over fifteen years. The last significantly large purchase happened in 2012 when around 600K shares were purchased at prices between $8 and $11. The stock currently trades at $16.77. This quarter saw a ~10% stake increase at prices between $14.70 and $17.27 and the position currently accounts for 6.41% of the US long portfolio.

BP plc (NYSE:BP): BP is a relatively new position in the portfolio that was first purchased in 2010. The stake remained minutely small for the next two years. The current 5.92% of the US long portfolio position was built over the last three quarters at prices between $40 and $51. This quarter saw a 65% stake increase at prices between $46 and $51. The stock currently trades at $50.56. The consistent buying over several quarters indicates a clear bullish bias. For investors attempting to follow Kahn, BP is a good option to consider for further research.

MBIA Inc. (NYSE:MBI): MBI has been the portfolio since 2007. Most of the current 5.09% position was purchased during the financial crisis in 2008 and 2009 at low prices. This quarter saw a 19% stake increase at prices between $10.94 and $15.08. The stock currently trades at $12.

Hologic Inc. (NASDAQ:HOLX): HOLX is a very long-term position. In 1999, the position size was at 1M shares and by 2003 the stake had increased to ~1.8M shares and accounted for around 6% of the US long portfolio. Since then, the position has been substantially reduced (after accounting for three 2-for-1 stock splits in 2005, 2008, and 2009). Even after large stake reductions and AUM growth, the current position still stands at 4.79% of the US long portfolio: the stock appreciated close to fifty-times during the holding period. This quarter saw some buying: ~15% stake increase at prices between $20 and $22.50. The stock currently trades at $24.40.

HOLX experienced some activist involvement last quarter: Carl Icahn acquired 12.5% of the business at around $21 and nominated two board-members.

Seaboard Corporation (NYSEMKT:SEB): SEB is another very long-term position that has been reduced significantly over the last fifteen years. The position size was ~29K shares in 1999 and accounted for around ~2% of the US long portfolio. The tremendous share price appreciation in the interim has resulted in the current stake accounting for 4.32% of the US long portfolio even though the position-size was reduced by around two-thirds to 11.5K shares: the stock was a ten-bagger during the period. This quarter saw a 28% stake increase at prices between $2450 and $2795 and the stock currently trades near the low end of that range at $2447. The large stake increase of a significantly large long-term position indicates a clear bullish bias. For investors attempting to follow Kahn, SEB is a good option to consider.

VOXX International (NASDAQ:VOXX): VOXX has been in the portfolio since 2001 when the company was named Audiovox. The current position stands at 4.08% of the US long portfolio. This quarter saw a 24% stake increase at prices between $12.37 and $17. The stock currently trades below the low end of that range at $10.70. For investors attempting to follow Kahn, VOXX is a very good option to consider for further research.

Nam Tai Property Inc. (NYSE:NTP): The 3.18% of the US long portfolio NTP stake was increased by more than one-third this quarter at prices between $5.59 and $7.27. The stock currently trades near the top end of that range at $7.21. The original position was a ~2% (~400K shares) stake established in 2001 and the current position stands at just over 3.7M shares.

Sterling Bancorp (NYSE:STL), Genie Energy Ltd. (NYSE:GNE), Trinity Place Holdings (OTCQB:TPHS), and IDT Corporation (NYSE:IDT): These are small positions (less than ~2% of the US long portfolio each) that were increased this quarter. As the positions sizes are still relatively small, they do not indicate a clear bias.

Stake Decreases:

Patterson-UTI Energy (NASDAQ:PTEN): PTEN is a 5.98% of the US long portfolio position first purchased in 2009. Most of the current stake was purchased in 2010 and 2012 at prices between $13 and $22. Last two quarters saw the position getting reduced by around one-third at prices between $21 and $32. The stock currently trades at $32.29. The activity indicates a bearish bias.

SLM (Sallie Mae) Corporation (NASDAQ:SLM): SLM is a 3.26% of the US long portfolio position that has been in the portfolio for over fifteen years. The bulk of the current position was purchased in 2008 and 2010 at an average cost-basis around the mid-teens. The position was reduced by more than half in the last five quarters at prices between $17 and $27. The consistent selling indicates a clear bearish bias. The stock currently trades at around $8.77 - the price drop is primarily due to the effect of the spin-off of Navient (NASDAQ:NAVI) effective May 1, 2014 whereby SLM holders received one share of NAVI for each share of SLM held.

Kept Steady:

None.

The spreadsheet below highlights changes to Kahn's US stock holdings in Q1 2014:

(click to enlarge)

Source: Tracking Irving Kahn's Kahn Brothers Portfolio - Q1 2014 Update