5 Healthcare Stocks Kahn Brothers Is Bullish On

Kahn Brothers is a New York-based hedge fund which was founded by famous American businessman Irving Kahn (who recently passed away at the age of 109 as the Oldest Money Manager) in 1978. The fund currently manages a public equity portfolio worth $552.18 million as of September 30. Kahn Brothers recently reported its third quarter holdings in a 13F filing with the SEC.

In this article, we’ll take a look at the fund’s top picks from the healthcare sector, in which it was more heavily invested than any other sector. Healthcare has been one of the worst performing sectors in 2016, thanks to the US presidential election campaign, during which candidates have promised to slash drug prices after coming to the Oval Office. Hillary Clinton and Bernie Sanders openly criticized pharmaceutical companies on their high prices, and pledged to change the way the industry works. These statements took a toll on healthcare stocks, which are down by 8.4% for the year on average, while about 20% of the total market value of the world’s biggest healthcare companies has been wiped out.  However, as the political uncertainly abates, analysts think the healthcare sector is poised to grow, so let’s see what Kahn Brothers thought about names in the sector heading into the fourth-quarter.

Through extensive research that covered the portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details).

Novartis AG (ADR) (NYSE:NVS)

– Shares Owned by Kahn Brothers (as of September 30): 27,643

– Value of Kahn Brothers’ Holding (as of September 30): $2.18 million

Kahn Brothers reported ownership of 27,643 Novartis AG (ADR) (NYSE:NVS) shares as of September 30. The Swiss medical company reported third quarter EPS of $1.23 on $12.13 billion in revenue, versus the consensus estimates of $1.19 in EPS and $12.24 billion in revenue. The stock is down by over 17% year-to-date. Last week, the FDA gave fast-track review status to Novartis’ breast cancer drug Ribociclib. If approved, Novartis’ drug could take on Pfizer (NYSE:PFE)’s breast cancer drug Ibrance in the future. A total of 22 hedge funds tracked by Insider Monkey were bullish on Novartis AG (ADR) (NYSE:NVS) at the end of the second quarter.

GlaxoSmithKline plc (ADR) (NYSE:GSK)

– Shares Owned by Kahn Brothers (as of September 30): 632,040

– Value of Kahn Brothers’ Holding (as of September 30): $27.36 million

Kahn Brothers increased its holding in GlaxoSmithKline plc (ADR) (NYSE:GSK) by a whopping 66% in the third quarter, adding 251,705 shares of the company to its portfolio. The total value of the enhanced position stood at $27.36 million on September 30. The stock, which is currently under pressure amid a strong sterling pound, is down by 2.37% year-to-date. In the third quarter, GlaxoSmithKline’s sales jumped by 23% to $9.31 billion. At the end of the third quarter, Ken Fisher’s Fisher Asset Management held 11.86 million shares of GlaxoSmithKline plc (ADR) (NYSE:GSK).

On the next page, we’ll discuss some other healthcare stocks which held the attention of Kahn Brothers in the third quarter.

Pfizer Inc. (NYSE:PFE)

– Shares Owned by Kahn Brothers (as of September 30): 919,757

– Value of Kahn Brothers’ Holding (as of September 30): $31.15 million

Kahn Brothers sold 237,109 shares of Pfizer Inc. (NYSE:PFE) in the third quarter, ending the period with 919,757 shares of the company. The New York-based pharmaceutical giant recently reported its third quarter earnings, which fell short of analysts’ expectations. The company earned $0.61 per share on $13.05 billion in revenue, while analysts had projected EPS of $0.62 on $13.05 billion in revenue. Pfizer also recently announced the end of its development of bococizumab, which had been intended to help lower cholesterol. The company also trimmed the upper-end of its 2016 adjusted earnings forecast to $2.43 from $2.48 per share, while retaining the lower end at $2.38. The stock is down by some 6.8% so far this year. Out of 749 hedge funds in our database which filed 13Fs for the June 30 reporting period, 94 were long Pfizer Inc. (NYSE:PFE) at the end of the second quarter, down from 119 funds a quarter earlier.

Hologic, Inc. (NASDAQ:HOLX)

– Shares Owned by Kahn Brothers (as of September 30): 1.23 million

– Value of Kahn Brothers’ Holding (as of September 30): $47.94 million

Kahn Brothers sold off 3% of its position in Hologic, Inc. (NASDAQ:HOLX) during the third quarter, retaining a $47.94 million position in the company. The Massachusetts-based diagnostics and medical equipment company reported fiscal fourth-quarter EPS of $0.52 on $726.8 million in revenue, better than the expected EPS of $0.50 and expected revenue of $721.66 million. Hologic, Inc. (NASDAQ:HOLX) expects to earn between $0.50 and $0.51 per share in the first quarter of its fiscal year 2017, in-line with the consensus estimate of $0.51. The stock is flat so far in 2016. As of the end of the third quarter, Peter Algert and Kevin Coldiron’s Algert Coldiron Investors reported ownership of 40,016 shares of Hologic.

Merck & Co., Inc. (NYSE:MRK)

– Shares Owned by Kahn Brothers (as of September 30): 957,991

– Value of Kahn Brothers’ Holding (as of September 30): $59.79 million

Lastly, Kahn Brothers held 957,991 shares of New Jersey-based pharmaceutical company Merck & Co., Inc. (NYSE:MRK) at the end of the third quarter, with it ranking as its top healthcare pick and top stock pick overall. Merck’s lung cancer drug Keytruda recently got an approval from the FDA, catapulting the company’s stock to new heights. Keytruda is the first chemo-free treatment in the market for lung cancer. Merck earned $1.07 per share on $10.5 billion in revenue in the third quarter, above analysts’ forecast of $0.99 in EPS on $10.18 billion in revenue. The company expects fiscal 2017 EPS of between $3.71 and $3.78, versus the consensus of $3.75, while full year 2017 revenue is expected to come in between $39.7 billion and $40.2 billion, versus the consensus of $39.78 billion. The stock is up by over 13% year-to-date. Fisher Asset Management owns 6.81 million shares of Merck & Co., Inc. (NYSE:MRK) as of the end of the third quarter.

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