Kahn Brothers Portfolio – Q2 2022 Update

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 8/10/2022. 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 2022.

This quarter, Kahn Brothers’ 13F portfolio value decreased ~6% from ~$788M to ~$743M. The number of holdings decreased from 46 to 45. The largest individual stock position is Patterson-UTI Energy which accounts for 10.16% of the portfolio. Largest five positions are Patterson-UTI Energy, Assured Guaranty, Bristol Myers Squibb, Merck, and BP plc. Together, they account for ~47% 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:

Bristol Myers Squibb (BMY): The 9.63% of the portfolio BMY stake was built in Q1 2019 at prices between $45 and $54 and doubled next quarter at prices between $44.50 and $49.50. The three quarters through Q1 2021 had seen a combined ~18% trimming at prices between ~$57 and ~$67. The stock currently trades at $74.46. Last five quarters have seen only minor adjustments.

Merck & Co. Inc. (MRK): MRK is currently at 8.58% 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 next ten years through minor trimming almost every quarter. Q2 2019 saw a ~28% stake increase at prices between $73 and $86. The four quarters through Q1 2021 had seen a similar reduction at prices between ~$73 and ~$87. The stock currently trades at $88.93. Last five quarters have seen only minor adjustments.

Note: Last May, Merck spun-off Organon & Co. (OGN), a business focused on women’s health. Shareholders received one-tenth of a share of OGN for each MRK held. Organon was a ~$15B acquisition by Schering-Plough in 2007. It became part of Merck when they acquired Schering-Plough in 2009.

GSK plc (GSK): GSK is a large 8.39% 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 $35.73. Recent activity follows: The three quarters through Q1 2021 had seen a ~17% trimming while over the next three quarters there was a similar increase. Last two quarters have seen only minor adjustments.

MBIA Inc. (MBI): MBI has been in the portfolio since 2007 and it is currently at ~8% of the portfolio. Most 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. Q2 2019 also saw a similar increase at prices between $8.75 and $10.25. The stock currently trades at $12.72. Last several quarters have seen only minor adjustments.

Note: Kahn Brothers controls ~9% of the business.

Pfizer Inc. (PFE): PFE is a 7.39% of the portfolio position. This was a very small stake first purchased in 2000. The position was built 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 in Q2 2019: ~50% stake increase at prices between $39 and $44. The two quarters through Q3 2021 had seen another ~50% stake increase at prices between ~$36 and ~$50 . The stock currently trades at $48.29. Last three quarters have also seen minor increases.

New York Community Bancorp (NYCB): NYCB is a 7.16% 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 position 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. 2018 saw an about turn: ~130% stake increase at prices between $9 and $14.50. Q2 2019 saw a ~28% further increase at prices between $9.50 and $12. H2 2020 had seen a ~20% selling at prices between $7.80 and $11.10 while last year saw a ~15% stake increase. There was a similar increase this quarter at prices between $8.65 and $11. The stock is now at $10.65.

Citigroup Inc. (C): Citigroup is a very long-term holding. It 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 timeframe saw a huge stake built at a cost-basis in the 30s. Recent activity follows. There was a ~20% stake increase in Q2 2019 at prices between $62 and $71. The six quarters through Q4 2020 had seen a ~28% selling at prices between $37 and $81. Last three quarters have seen a ~34% stake increase at prices between ~$46 and ~$72. The stock currently trades at ~$54, and the stake stand at 6.90% of the portfolio.

VOXX International (VOXX): VOXX has been in the portfolio since 2001 when the company was named Audiovox. The current position stands at 3.35% of the portfolio. Recent activity follows. The two quarters through Q1 2021 had seen the stake reduced by ~60% at prices between $7.75 and $27. Q3 2021 saw a ~40% stake increase at prices between $9.70 and $14.50. That was followed with a ~35% stake increase over the last two quarters at prices between ~$6 and ~$13. The stock is now at $9.34.

Note: Kahn Brothers owns ~12% of the Class A shares through the ownership of ~2.68M shares – John J. Shalam has majority control through ownership of the Class B shares.

IDT Corporation (IDT): IDT is a 1.59% 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. There was a ~25% selling in Q4 2020 at prices between ~$6 and ~$14. The stock is now at $26.01. It is a very long-term position that has returned many-fold over the years. Last six quarters have seen only minor adjustments.

ViewRay Inc. (VRAY): The very small 0.58% of the portfolio VRAY stake saw a ~300% stake increase over the last four quarters at prices between ~$2.40 and ~$7.60. The stock currently trades at $3.57.

Stake Decreases:

Patterson-UTI Energy (PTEN): PTEN is currently the largest position at 10.16% of the portfolio. It was first purchased in 2009. Most of the original stake was purchased in 2010 and 2012 at prices between $13 and $22. The position has wavered. Recent activity follows. The three quarters through Q3 2019 had seen a ~45% stake increase at prices between $9.50 and $18 and that was followed with a ~37% increase next quarter at prices between $7.90 and $11.80. H1 2020 had seen another ~125% stake increase at prices between ~$1.70 and ~$11. Q3 2020 also saw a ~15% further increase while next quarter saw similar selling. This quarter saw a similar reduction at prices between ~$14.30 and ~$19.80. The stock currently trades at $15.27.

Assured Guaranty (AGO): AGO is currently the second-largest position in the portfolio at 9.80%. It was established in Q1 2017 at prices between $36 and $42.50 and doubled the following quarter at around the same price range. The three quarters thru Q1 2018 had seen a combined ~60% increase at prices between $33 and $45. Q2 2019 also saw a ~25% stake increase at prices between $41 and $48. Since then, there have only been minor adjustments. The stock is now at $54.39.

Note: Assured Guaranty is considered a uber-cannibal as it has bought back more than half of the shares outstanding over the last decade.

BP plc (BP): BP stake was first purchased in 2010. The position remained minutely small for the next two years. The bulk of the current large 8.40% of the portfolio stake was built in 2013 at prices between $40 and $53. Through Q1 2019, the stake was increased by ~60% at prices between $28.50 and $53. There was another ~22% stake increase next quarter at prices between $40.50 and $45.25. Q2 2020 also saw a ~17% stake increase at prices between $21.50 and $28.50. That was followed with a ~13% increase in Q2 2021 at prices between ~$24 and ~$28. The stock currently trades at $31.42. Last four quarters have seen only minor adjustments.

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 5.18% of the portfolio even though the position-size was reduced by over two-thirds to 9.91K shares: the stock is a twenty-bagger during this period. The five years through Q1 2019 had seen a ~36% selling at prices between $2550 and $4700. Q2 2019 saw an about turn: ~80% stake increase at prices between $3955 and $4700. The four quarters through Q2 2021 had seen a ~18% selling at prices between ~$2660 and ~$4144. The stock currently trades at ~$4086. Last few quarters have also seen minor trimming.

BlackBerry Ltd. (BB): BB was a very small 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. Q2 2019 also saw a ~22% stake increase at prices between $7.40 and $9.60. Last two years have seen a ~75% selling at prices between ~$4.50 and ~$25. The stock is now at $6.74. It is currently a 1.09% of the portfolio position.

Webster Financial (WBS): Last April, Webster Financial and Sterling Bancorp jointly announced a merger. Terms called for Sterling shareholders to receive 0.463 shares of Webster stock for each Sterling stock held. Kahn Brothers had ~271K shares of Sterling Bancorp for which they received ~125K shares of Webster Financial. The original stake was a very long-term position that was established in 2004 (Provident Bancorp at the time). WBS stock is now at $48.88. There was marginal trimming in the last two quarters.

Note: Other very small positions (less than 0.5% of the portfolio each) in the portfolio include Alcon Inc. (ALC), AT&T (T), Bank of America (BAC), Berkshire Hathaway (BRK.B), Chevron (CVX), Comcast (CMCSA), Crew Energy (OTCQB:CWEGF), Deutsche Bank (DB), Exxon Mobil (XOM), First National Bank Alaska (OTCQX:FBAK), Genie Energy (GNE), Hologic (HOLX), Hope Bancorp (HOPE), IDW Media (IDW), JPMorgan Chase (JPM), Lifeway Foods (LWAY), Nam Tai Property (NTP), Navient (NAVI), Novartis (NVS), Organon & Co., PepsiCo (PEP), Peyto Exploration (OTCPK:PEYUF), Procter & Gamble (PG), Provident Financial Services (PFS), Rafael Holdings (RFL), Trinity Place Holdings (TPHS), Verizon (VZ), Viatris (VTRS), and Zedge Inc. (ZDGE). Zedge is a spinoff from IDT and Organon is a spinoff from Merck.

The spreadsheet below highlights changes to Kahn’s 13F stock holdings in Q2 2022: