Hedge funds and other major investors continue to file their 13Fs for the fourth quarter of 2012 this week, disclosing many of their long equity positions as of the end of December. We believe that there are multiple ways to take advantage of this information. One technique we use is to pool 13F filings in our database and use them to formulate investment strategies; the most popular small cap stocks among hedge funds as of the end of June 2012, as listed in our August newsletter, beat the S&P 500 index by 18 percentage points between September and January despite the significant delay from when these positions were actually held (read more about our hedge fund investing strategies).
Of course, investors can also treat individual 13F filings as a list of recommended stocks to be researched further if a quick look shows that they may be good values. Kahn Brothers, a fund Irving and Thomas Kahn have managed since 1978, recently filed its 13F. Read on for our thoughts on the fund’s five largest holdings and compare them to previous filings.
Kahn Brothers owned 2.5 million shares of Pfizer Inc. (NYSE:PFE) , making the pharmaceutical company its largest holding by market value. Pfizer was also billionaire Ken Fisher of Fisher Asset Management’s top stock pick for 2013 (see more of Fisher’s stock picks). The stock currently trades at 14 times trailing earnings, though revenue did decline last quarter compared to the fourth quarter of 2011. Analyst expectations imply a forward P/E of 12. Pfizer also pays a dividend yield of 3.6% at current divided levels, so it offers at least something of a combination of value and income.
Another of the fund’s top picks was Citigroup Inc. (NYSE:C) , with Kahn Brothers reporting a position of 1.3 million shares. Citi had been one of the ten most popular stocks among hedge funds in the third quarter of 2012, and there is a value case to be made given the substantial discount to book value (the P/B ratio is 0.7) and the forward P/E of 8. However, we think that peers offer considerably better stability and trailing earnings performance at a slight premium in asset-based terms; JPMorgan Chase & Co. (NYSE:JPM), for example, has a trailing P/E of 9 and a P/B of slightly less than 1.
New York Community Bancorp, Inc. (NYSE:NYCB) was another of Kahn Brothers’ favorite stocks. It is a $6 billion market cap bank holding company offering an attractive dividend yield. It is also valued at about the book value of its equity and at 12 times trailing earnings, so while not a screaming buy in value terms we would not be calling it overvalued either. With the business seeing slight growth it may be a good prospect for income investors.