Kahn Brothers’ Top Stock Picks: Merck & Co. Inc. (MRK) Overtakes Citigroup Inc. (C) as Top Holding

Kahn Brothers Group is a New York-based hedge fund firm founded by Irving Kahn, Thomas Graham Kahn and Alan Kahn in 1978. Irving Kahn, the firm’s founding chairman who passed away last year at the age of 109, served as Benjamin Graham’s teaching assistant at Columbia Business School in the 1930s. Therefore, Kahn Brothers’ investment philosophy strongly leans on Graham’s original “discount to net asset purchase” model. The New York-based asset manager, currently overseen by co-founder Thomas Graham Kahn, seeks to invest in out-of-favor equity securities that trade at undervalued or attractive price levels. Although value investing hasn’t yielded great results in the past several years, this investment philosophy will definitely show its full power once again in the foreseeable future. With that in mind, let’s have a look at Kahn Brothers’ five largest equity holdings at the end of the March quarter.

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#5. New York Community Bancorp Inc. (NYSE:NYCB)

– Number of shares owned by Kahn Brothers as of March 31: 2.71 Million

– Value of Kahn Brothers’ holding as of March 31: $43.15 Million

Kahn Brothers reduced its stake in New York Community Bancorp Inc. (NYSE:NYCB) by 39,511 shares during the March quarter to 2.71 million shares, which were valued at $43.15 million at quarter-end. The multi-bank holding company agreed to acquire Astoria Financial Corp (NYSE:AF) in the final quarter of 2015, which will cause the company to exceed the $50 billion threshold for a Systemically Important Financial Institution (SIFI). As a result, the soon-to-be combined company will be subject to stricter capital requirements, liquidity requirements, dividend limits, among other things. Under the terms of the October deal, Astoria shareholders will receive one share of NYCB common stock and $0.50 in cash for each Astoria share. Shares of New York Community are down 10% since the beginning of 2016, which has pushed its dividend yield to 4.64%. David Harding’s Winton Capital Management reported owning 3.13 million shares of New York Community Bancorp Inc. (NYSE:NYCB) in its 13F for the March quarter.

#4. Hologic Inc. (NASDAQ:HOLX)

– Number of shares owned by Kahn Brothers as of March 31: 1.33 Million

– Value of Kahn Brothers’ holding as of March 31: $45.76 Million

The Graham-style investment firm reduced exposure to Hologic Inc. (NASDAQ:HOLX) by 23,767 shares during the first three months of 2016, ending the quarter with 1.33 million shares worth $45.76 million. The $46.76 million-stake accounted for 8.6% of Kahn Brothers’ equity portfolio on March 31. The manufacturer and supplier of diagnostics products, medical imaging systems and surgical products has lost 12% of value since the start of 2016, partially owing to the seemingly disappointing financial results for the second quarter of fiscal 2016 that ended March 26. Hologic’s top- and bottom-line figures were ahead of analysts’ expectations, but investors appear to have been disappointed with the company’s revenue projections for the third quarter of fiscal 2016. The management anticipates revenues in the range of $695 million to $705 million for the quarter, which would imply a top-line a growth rate between 0.2% and 1.6%. Ken Fisher’s Fisher Asset Management owns 47,620 shares of Hologic Inc. (NASDAQ:HOLX) as of March 31.

#3. Citigroup Inc. (NYSE:C)

– Number of shares owned by Kahn Brothers as of March 31: 1.14 Million

– Value of Kahn Brothers’ holding as of March 31: $47.53 Million

The New York-based contrarian hedge fund was mildly bullish on Citigroup Inc. (NYSE:C) in the first quarter of 2016, during which Kahn Brothers lifted its stake in the bank by 14,355 shares to 1.14 million. The 1.14 million-share stake was worth $47.53 million at the end of March and accounted for 8.9% of Kahn Brothers’ equity portfolio. The shares of the fourth-largest U.S. bank by assets have gained 17% in the past three months, but they are down 15% for the year. It should be noted that Citigroup was the only big U.S. bank to have designed an acceptable “living will” resolution plan, which explains how banks would go bankrupt without destabilizing the financial system in times of turmoil. Citigroup has implemented a number of measures to inject freshness into its business, which included exiting consumer businesses in Brazil, Argentina and Colombia, as well as overhead reductions. The 13F filing for the March quarter submitted by Richard S. Pzena’s Pzena Investment Management showed a stake of 9.86 million shares in Citigroup Inc. (NYSE:C).

#2. New York Times Co (NYSE:NYT)

– Number of shares owned by Kahn Brothers as of March 31: 3.89 Million

– Value of Kahn Brothers’ holding as of March 31: $48.44 Million

Kahn Brothers owned 3.89 million shares of New York Times Co (NYSE:NYT) at the end of the March quarter, 38,967 shares less than at the end of the December quarter. The quarter-end stake was valued at $48.44 million and made up 9.1% of the New York-based hedge fund’s equity portfolio. The newspaper publisher appears to have been successful in offsetting the continued decline of its print business with various digital initiatives. The company’s circulation revenues increased 2.4% in the first quarter of this year, with its digital subscription growth and a print home-delivery price increase for the Times overshadowing the declining number of print copies sold. In the first quarter of 2016, New York Times acquired digital marketing agency HelloSociety LLC for $12.3 million in an attempt to boost digital advertising revenue, which fell 1.3% in the first quarter. New York Times shares are 7% in the red year-to-date. Charles Lemonides’ Valueworks LLC has 378,202 shares of New York Times Co (NYSE:NYT) in its equity portfolio as of March 31.

#1. Merck & Co. Inc. (NYSE:MRK)

– Number of shares owned by Kahn Brothers as of March 31: 985,419

– Value of Kahn Brothers’ holding as of March 31: $52.14 Million

Merck & Co. Inc. (NYSE:MRK) was the largest equity holding in Kahn Brothers’ equity holding at the end of the March quarter, comprised of 985,419 shares worth $52.14 million. The New York-based investment firm had 25,508 shares more in its equity portfolio at the end of December than at the end of March. The U.S. drug giant may pursue a number acquisitions this year that may not necessarily involve just cancer drugmarkers. In January 2016, Merck & Co acquired a privately-held UK-based drug discovery company, called IOmet Pharma Ltd, which focuses on developing innovative medicines for the treatment of cancer. Just recently, Merck & Co raised earnings per share and revenue guidance for 2016. The company anticipates EPS in the range of $3.65-to-$3.77 per share on revenue of $39 billion-to-$40.2 billion, as compared to the previous EPS guidance of $3.60-to-$3.75 per share on revenue of $38.7 billion-to-$40.2 billion. The stock is up 2% year-to-date. Stockholm-based HealthInvest Partners AB, founded by Anders Hallberg and Carl Bennet, acquired a new stake of 251,400 shares of Merck & Co. Inc. (NYSE:MRK) during the March quarter.

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