Tracking Kahn Brothers Portfolio - Q2 2019 Update

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Includes: AGO, ALC, BAC, BB, BMY, BP, C, CCRK, CMCSA, CVX, CWEGF, ED, GBCI, GNE, GSK, HOLX, HOPE, IDT, IDWM, LWAY, MBI, MRK, NAVI, NTP, NVS, NYCB, NYT, OCBI, PFE, PTEN, RFL, SBBX, SEB, STL, T, TPHS, VHI, VOXX, VRAY, VZ, XOM, ZDGE
by: John Vincent
Summary

Kahn Brothers Group's 13F portfolio value increased from $640M to $800M this quarter.

Most of the top positions were increased substantially during the quarter.

The portfolio continues to be very concentrated, with the top five positions accounting for ~46% of the 13F holdings.

This article is part of a series that provides an ongoing analysis of the changes made to Kahn Brothers’ 13F stock portfolio on a quarterly basis. It is based on Kahn Brothers’ regulatory 13F Form filed on 08/05/2019. Please visit our Tracking Kahn Brothers Portfolio series to get an idea of their investment philosophy and our last update for the fund’s moves during Q1 2019.

This quarter, Kahn Brothers’ 13F portfolio value increased ~25%, from $640M to $800M. The number of holdings increased from 32 to 44. The largest individual stock position is Merck (MRK), which accounts for 11.19% of the portfolio. The five largest positions are Merck Inc., Citigroup Inc. (C), BP plc (BP), Assured Guaranty (AGO), and GlaxoSmithKline plc (GSK). Together, they account for 45.84% of the 13F portfolio.

Irving Kahn was a disciple of Benjamin Graham and is the author of Benjamin Graham The Father of Financial Analysis. He was by far the oldest protégé (died 2/26/2015 at age 109) and one of the closest followers of the original teachings of Benjamin Graham.

Stake Increases

Seaboard Corporation (SEB): SEB is a very long-term position that was reduced significantly over the last two decades. The position size was ~29K shares in 1999 and accounted for around ~2% of the 13F portfolio. The tremendous share price appreciation in the interim has resulted in the current stake accounting for ~7% of the portfolio, even though the position size was reduced by more than half to ~13.25K shares: the stock is a twenty-bagger during this period. The last five years had seen a ~36% selling at prices between $2550 and $4700. This quarter saw an about-turn: an ~80% stake increase at prices between $3955 and $4700. The stock currently trades at ~$3750. For investors attempting to follow, SEB is a good option to consider for further research.

Bristol Myers Squibb (BMY): The 5.77% of the portfolio BMY stake was built last quarter at prices between $45 and $54 and doubled this quarter at prices between $44.50 and $49.50. The stock currently trades at $45.38.

Merck Inc.: MRK is the largest position at ~11% of the 13F portfolio. It was a very small stake first purchased in 2000. The position had fluctuated over the years, but the bulk of the current stake was purchased in 2009 at prices between $24 and $38. The position had since been sold down by roughly 40% over the last ten years through minor trimming almost every quarter. This quarter saw a ~28% stake increase at prices between $73 and $86. The stock currently trades at $83.12.

Citigroup Inc.: C is Kahn’s second-largest position. It is a very long-term holding and was a small position in Kahn Brothers’ first 13F filing in 1999. By 2006, the position still accounted for less than 0.1% of the portfolio. The 2009-10 time frame saw a huge stake built at a cost basis in the $30s. The stock currently trades at $65.18, and it stands at 9.66% of the portfolio. There was a ~20% stake increase this quarter at prices between $62 and $71.

BP plc : BP stake was first purchased in 2010. The position remained minutely small for the next two years. The bulk of the current 8.73% of the portfolio stake (the third-largest 13F stake) was built in 2013 at prices between $40 and $53. The position had seen a ~60% stake increase since at prices between $28.50 and $53. The stock currently trades at $37.66. There was another ~22% stake increase this quarter at prices between $40.50 and $45.25.

Assured Guaranty: AGO is a large 8.24% of the portfolio stake established in Q1 2017 at prices between $36 and $42.50 and doubled the following quarter at prices between $37 and $42. The three quarters thru Q1 2018 had seen a combined ~60% increase at prices between $33 and $45. The stock is now at $41.91. This quarter also saw a ~25% stake increase at prices between $41 and $48.

GlaxoSmithKline plc: GSK is a large ~8% of the portfolio position. It was a very small 0.41% of the portfolio stake as of Q3 2015. That original position was increased by roughly eighteen times over the next six quarters at prices between $37.50 and $45. The stock is currently at $40.36. There was a ~20% increase over Q4 2017 and Q1 2018 at prices between $34.50 and $41. This quarter saw another ~25% stake increase at prices between $38.50 and $42.

New York Community Bancorp (NYCB): NYCB is a 6.82% of the portfolio stake. It is a very long-term position that was first purchased in 2000. The stake was built to a large ~10% position (over 1.4M shares) by 2003, and in 2004 the position was doubled. Since then, the stake had been kept largely steady, although adjustments occurred every year. 2015 through 2017 saw a ~30% overall reduction at prices between $13.50 and $19. Last year saw an about-turn: a ~130% stake increase at prices between $9 and $14.50. This quarter saw a ~28% further increase at prices between $9.50 and $12. The stock is now at $11.44.

MBIA Inc. (MBI): MBI has been in the portfolio since 2007, and it is currently at 6.54% of the portfolio. The majority of the original position was purchased during the financial crisis in 2008 and 2009 at low prices. Q2 2015 saw a ~75% stake increase at prices between $5 and $9.81, and that was followed with another ~30% increase in the following quarter at prices between $5.50 and $7.70. The stock currently trades at $9.08. The last four quarters had seen marginal selling, while this quarter saw a ~28% stake increase at prices between $8.75 and $10.25.

BlackBerry Ltd. (BB): BB was a very small ~0.5% of the 13F portfolio position established in Q3 2013 at prices between $8 and $10.84. Q2 2014 saw a 270% stake increase at prices between $7.15 and $10.12. The five quarters through Q1 2016 saw the position more than doubled at prices between $6 and $11. There was another ~40% increase in Q2 2016 at prices between $6.29 and $8.09. This quarter also saw a ~22% stake increase at prices between $7.40 and $9.60. It is currently a ~5% of the portfolio position. The stock is at $6.85.

Pfizer Inc. (PFE): PFE is a 4.37% of the portfolio position. This was a very small stake first purchased in 2000. Most of the current position was purchased in 2007 at prices between $23 and $28. The seven quarters through Q1 2016 had seen a one-third reduction at prices between $28 and $36. The next two years had also seen another two-thirds selling at prices between $30 and $39. The pattern reversed this quarter: a ~50% stake increase at prices between $39 and $44. The stock currently trades at $36.96.

Patterson-UTI Energy (PTEN): PTEN is a 2.83% of the portfolio position first purchased in 2009. Most of the original stake was purchased in 2010 and 2012 at prices between $13 and $22. The position was reduced by ~55% between Q1 and Q3 2014 at prices between $23 and $38. Q4 2014 saw an about-turn, as the stake was increased by just over 40% at prices between $14.25 and $32.50. Q3 2017 saw another ~40% stake increase at prices between $15 and $22. The stock currently trades at $9.99. The last three quarters have seen another ~45% stake increase at prices between $9.50 and $18.

Nam Tai Property Inc. (NTP): The original NTP position was a ~2% stake established in 2001. The stake saw a ~40% selling in Q4 2016 at prices between $7.15 and $9.50, while this quarter there was a ~20% increase at prices between $9.35 and $10.10. The stock currently trades at $9.99.

Note: Kahn Brothers controls ~6% of the business through their ownership of 2.23M shares of NTP.

VOXX International (VOXX): VOXX has been in the portfolio since 2001, when the company was named Audiovox. The current position stands at ~2% of the portfolio. In recent activity, there was an almost one-third increase in Q2 2017 at prices between $4.65 and $8.90, and that was followed with another ~60% stake increase the following quarter at prices between $6.40 and $8.85. The stock is now at $4.71. This quarter also saw a ~12% stake increase.

Note: Kahn Brothers own ~17% of the Class A shares through the ownership of ~4M shares – John J. Shalam has majority control through ownership of the Class B shares.

Sterling Bancorp (STL): STL is now a small 1.39% of the portfolio position. The original stake was a very long-term position that was established in 2004 (Provident Bancorp at the time). The six quarters through Q1 2016 had seen a ~25% reduction at prices between $12.50 and $17.75. 2017 saw a combined ~11% trimming at prices between $21 and $26. The last three quarters had seen another ~45 % selling at prices between $15.75 and $24.50. The stock is now at $19.58. There was a ~15% stake increase this quarter.

IDT Corporation (IDT) and Rafael Holdings (RFL): IDT is a very small 0.83% portfolio position that saw a roughly one-third stake increase in Q2 2017 at prices between $10 and $15. Q4 2017 saw another ~20% increase at prices between $7.75 and $13.25. The stock is now at $9.17. It is a very long-term position that has returned manifold over the years. RFL is a spinoff from IDT that started trading in March 2018 at ~$7 per share. The stock has more than doubled and currently goes for $19.88. Both positions saw ~40% stake increases this quarter.

Genie Energy (GNE) and Trinity Place Holdings (TPHS): These two very small (less than ~0.80% of the portfolio each) stakes were increased during the quarter.

Note: Genie Energy is a spinoff from IDT Corporation.

Stake Decreases

Hologic Inc. (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 portfolio. Since then, the position has been substantially reduced (after accounting for three 2-for-1 stock splits in 2005, 2008, and 2009). The stock is now at $48.15 and has appreciated over 35 times during the holding period. The last seven quarters saw a combined ~55% reduction.

The New York Times Company (NYT): NYT is a ~2% of the portfolio position. The stake was first purchased in 2006, and the bulk of the current position was built in 2011 and 2012 at prices between $5.75 and $10.75. 2014-2017 had seen a combined ~50% selling at prices between $11 and $25. The last five quarters have seen another ~80% reduction at prices between $17.50 and $35. The stock currently trades at $35.27. Kahn Brothers is harvesting gains.

Note: Other very small positions (less than 0.5% of the portfolio each) in the portfolio include AT&T (T), Alcon (ALC), Bank of America (BAC), Chevron (CVX), Comcast (CMCSA), Crew Energy (OTCPK:CWEGF), Coal Creek (OTCPK:CCRK), Con Edison (ED), Exxon Mobil (XOM), Glacier Bancorp (GBCI), Hope Bancorp (HOPE), IDW Media (OTCPK:IDWM), Lifeway Foods (LWAY), Navient (NAVI), Novartis (NVS), Orange County Bancorp (OTCQX:OCBI), SB One Bancorp (SBBX), Verizon (VZ), ViewRay (VRAY), Valhi (VHI), and Zedge Inc. (ZDGE). ZDGE is a spinoff from IDT.

The spreadsheet below highlights changes to Kahn’s 13F stock holdings in Q2 2019:

Irving Kahn - Kahn Brothers Q2 2019 13F Report Q/Q Comparison

Disclosure: I am/we are long BAC, BB, BP, GSK, NYCB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.