Hedge Fund Kahn Brothers’ Small Cap Picks Include The New York Times Company (NYT)

Patterson-UTI Energy (NASDAQ:PTEN) was another of Kahn Brothers’ small cap picks. The company provides contract drilling services to North American energy companies, and has actually seen weaker financials recently: in its most recent quarter, sales were down 10% compared to the same period in the previous year and this pulled net income down by over 30%. Analyst expectations are for earnings to be a bit lower in 2014 than in 2012, though the forward P/E is still near value territory at 14. The most recent data has 11% of the float held short.

Another popular short target which the fund liked during Q4 was MBIA Inc (NYSE:MBI), with the filing disclosing ownership of almost 3 million shares but short sellers accounting for 16% of the float. MBIA carries a significant discount to the book value of its equity, with a P/B ratio of 0.7. However, looking at the company’s capital structure we can see that it is highly levered; possibly because of this, the stock’s beta is quite high at 2.2, suggesting that MBIA is vulnerable to a bear market. So we would be careful when trying to determine if it is actually undervalued.

Old Republic’s dividend yield is high enough that it’s probably worth investigating for income investors, though it would be important to see his safe the dividend payments are given the questionable financial conditions. The New York The New York Times Company (NYSE:NYT) is just not in an attractive industry, and given the high earnings multiples we don’t think that it is a good buy. In the case of Patterson-UTI Energy (NASDAQ:PTEN), we would avoid the stock at least until the company showed more stable financial performance and even then it might be better to look at the energy companies directly.

Disclosure: I own no shares of any stocks mentioned in this article.