The Kahn Brothers have operated their namesake hedge fund, Kahn Brothers Group, since 1978. Irving Kahn studied under Benjamin Graham and earned his M.B.A. from Columbia University. Thomas G. Kahn received his M.B.A. from New York University. Their website quotes Benjamin Graham, whose protégé, Warren Buffett, was inspired by Graham’s value-based approach: “An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” So goes the Kahn Brothers’ investment methodology, which focuses on book value, historic P/E, management quality, and market inefficiencies to gauge the quality of investments.
The following lists the top four holdings of the Kahn Brothers Group, as reported in its most recent 13F filing, which you can view here.
Pfizer Inc. (NYSE:PFE) operates two general branches of pharmaceutical care, a diversified branch and a biopharmaceutical branch. The company operates at a high margin, maintaining over a 20 percent operating margin over the past three years. Additionally, Pfizer is an attractive income stock. The company expects to repurchase $5 billion of its current $10 billion authorization in 2012, after having repurchased $9 billion in 2011. The current dividend yield of 3.6 percent is also attractive, and the company has plans to raise the dividend in the near future. In 2013, the company will likely spin off its animal health division in order to focus on its core operations. Pfizer Inc. also announced that it plans to sell its nutrition business to Nestle SA (ETR:NESR) for $11.8 billion. Ken Fisher’s Fisher Asset Management also has significant Pfizer holdings.
Another pharmaceutical giant, Merck & Co., Inc. (NYSE:MRK) also presently possesses pharmaceutical and animal health business. One of the company’s flagship medications, Singulair, went off of patent in August. This, along with pricing pressures in the European economic climate, is likely to erode revenues this year. The consensus earnings estimate for the company this year is $3.81 per share, which is an increase from $2.02 in 2011; this puts the present share price at around 11 times 2012 earnings. The company indicated that it intends to obtain regulatory approval for six new pharmaceutical products through the end of 2013. Like Pfizer, Merck offers a substantial dividend yield at 3.8 percent.
New York Community Bank
Shares of New York Community Bancorp, Inc. (NYSE:NYB) offer an impressive 7.3 percent dividend, which has been paid continuously, on a quarterly basis, for about two decades. Additionally, the beta for the stock at about 0.8 is significantly lower than that of larger banks, indicating that the stock is less correlated with the broader market. The bank’s 33 percent net margin is also one of the best among the smaller community banks, though like any other bank, it is facing significant headwinds and low interest rates, things that will erode revenues in the short term. The company is expanding into Florida, Ohio, and Arizona, which is both a significant risk for the bank and a source of growth.
New York Times
The New York Times Company (NYSE:NYT) not only publishes its famous newspaper but also operates a robust online news network and has stakes in several paper mills. Share prices have been in a funk since 2004, largely stemming from the steady rise in free digital content. The company still charges its subscribers a fee, though its “freemium” model allows non-subscribers to view a great deal of popular content. The advertising space is very competitive, and the New York Times Company reported a 27 cent loss in 2011, though it is on pace for around $0.60 per share earnings this year after revamping its digital subscriber model.