Kahn Brothers’ Top Stock Picks For Q3

Irving and Thomas Kahn are value investors who have been running their investment firm since 1978. Irving Kahn was one of legendary value investor Benjamin Graham’s students, and the firm’s emphasis on a stock’s pricing relative to its book value and historical earnings is much in line with that tradition. In early November Kahn Brothers filed its 13F for the third quarter of 2012, which discloses many of its long equity positions as of the end of September. Read on for our quick take on its top five holdings and compare their picks to previous filings.

Irving Kahn

The fund’s top pick was pharmaceutical manufacturer Pfizer Inc. (NYSE:PFE), with Kahn Brothers reporting a position of 2.5 million shares- essentially unchanged from three months earlier. The $184 billion market cap giant reported earnings growth of 25% in its most recent quarterly report compared to the same period in 2011 despite somewhat lower revenue. It trades at 18 times trailing earnings, but an optimistic analyst group projects continued strong growth that implies a forward P/E of only 11. With a 3.5% dividend yield as well, Pfizer’s got our attention; however, we’d need to do due diligence on that projected path to such an attractive P/E multiple. Billionaire Ken Fisher’s Fisher Asset Management has been another large investor in Pfizer.

New York Community Bancorp, Inc. (NYSE:NYB) was another of Kahn Brothers’ favorite stocks, though as with Pfizer the fund’s position was more or less unchanged at 3.6 million shares. The retail bank holding company trades at somewhat higher P/E and P/B multiples than many large banks- it is priced at 1.1 times the book value of its equity, and 12 times trailing earnings- but on an absolute basis New York Community Bancorp does not look particularly overpriced. The stock also offers a 7.2% dividend yield, having paid a 25 cent per share dividend every quarter since April 2004. Value investors should look at other banks, but income investors should take it into consideration.

Kahn Brothers’ position in Merck & Co., Inc. (NYSE:MRK) was also kept steady at 1.1 million shares. Like Pfizer, Merck is not a particularly good value stock when looking at trailing earnings- the P/E multiple is 21- but if Wall Street analysts are right then the company is in for some very good quarters that will bring its earnings up. That P/E becomes 12 on the basis of forward estimates. Merck’s dividend yield is also good, at 4.5%. As with Pfizer, we like that pricing as long as the company can deliver on those earnings targets- and would like to check the company out more closely.

The firm did slightly increase its stake in, of all things, The New York Times Company (NYSE:NYT), with the 4.7 million shares in its portfolio at the end of September being just a bit higher than the 4.6 million that it had owned three months earlier. The New York Times experienced a 16% decline in revenue in the third quarter of the year versus Q3 2011, which contributed to an 86% decrease in earnings over the same period. At 17 times consensus earnings for 2013- a figure which reflects a dramatic improvement in its business- we don’t think that investors should be buying.

Citigroup Inc. (NYSE:C) gave Kahn Brothers some exposure to the big banks in the second quarter, when the firm had bought the stock heavily, and it broke into the top five holdings in the 13F portfolio by the end of the third quarter. The megabank is getting a new CEO with the departure of Vikram Pandit, and is up 33% year to date. This has brought it to a multiple of 8 times expected earnings for next year, which we’d normally consider to be value territory, and it also trades at a steep discount to book value. We looked at Citi recently and decided that investors could buy it, JPMorgan Chase, or Wells Fargo depending on how much they valued low multiples versus safety and stability. Read our recent analysis of Citigroup.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!