Kahn Brothers’ Top Stock Picks for Early 2016; Citigroup Inc. (C) Leading the Pack

#3 New York Times Co (NYSE:NYT)

• Shares Owned by Kahn Brothers (as of December 31): 3.93 Million
• Value of Holding (as of December 31): $52.69 Million

The Kahn Brothers Group slightly reduced its stake in the iconic newspaper during the final quarter of 2015, ending the quarter with 3.93 million shares. Specifically, the hedge fund firm cut its stake by less than 10,000 shares during the three-month period. New York Times Co (NYSE:NYT)’s shares are down by 16% over the past 12 months, after having lost nearly 10% in 2016. Just recently, the global media organization released its financial results for the fourth quarter and full 2015 year. The company’s revenue reached $1.58 billion last year, down from $1.59 billion reported for 2014. Circulation revenue, which accounted for almost 54% of total revenue, grew by 1% year-over-year, whereas ad sales dropped by 3.6% year-over-year. The New York Times has focused and is anticipated to continue focusing its efforts on expanding its digital audience to tackle declining print readership. Earlier this week, the company launched an online Spanish edition website in an effort to expand its reach, which will cover news and stories for Spanish speakers. Given that Spanish is among the most widely spoken languages in the world, it is highly likely that the company will be able to boost its ad revenue from the venture. Royce & Associates, founded by Chuck Royce, owns approximately 455,000 shares of New York Times Co (NYSE:NYT) as of the end of the fourth quarter.

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

• Shares Owned by Kahn Brothers (as of December 31): 1.01 Million
• Value of Holding (as of December 31): $53.40 Million

Kahn Brothers was mildly bullish on Merck & Co. Inc. (NYSE:MRK) in the fourth quarter of 2015, as it lifted its stake in the company by 4,719 shares during the quarter. The shares of the pharmaceutical giant have lost about 16% over the past 12 months, thus pushing the company’s valuation towards attractive levels. Earlier this month, Merck & Co. reported 2015 sales of $39.50 billion, down from $42.24 billion for 2014. The decrease in top-line results was mainly attributable to the adverse impact of foreign exchange. Its non-GAAP earnings per share (EPS) increased to $3.59 from $3.49 year-over-year. The company’s management anticipates 2016 EPS to be in the range of $3.60 to $3.75 and revenue to be in the range of $38.7 billion to $40.2 billion. Meanwhile, analysts expect EPS of $3.70 for 2016, which results in a forward P/E of 13.32, slightly below the 15.20 average for the pharmaceuticals industry. Fisher Asset Management holds 6.82 million shares of Merck & Co. Inc. (NYSE:MRK) as of December 31.

#1 Citigroup Inc. (NYSE:C)

• Shares Owned by Kahn Brothers (as of December 31): 1.12 Million
• Value of Holding (as of December 31): $58.17 Million

Kahn Brothers’ position in Citigroup Inc. (NYSE:C) remained largely unchanged during the fourth quarter, being boosted by just 560 shares during the quarter. This position accounted for 10.39% of the fund’s U.S.-focused equity portfolio at the end of the fourth quarter. Financial stocks have been plummeting since the beginning of the year on worries about a potential U.S economic slowdown and concerns about worsening credit quality, especially in the energy sector. Of course, Citigroup is no exception, as its shares have lost more than 31% since the beginning of the year. In fact, Citigroup’s market value is at a huge discount to its tangible book value at the moment. A potential U.S recession would result in higher loan defaults, deteriorating credit quality, and lower interest rates. However, there aren’t any serious indicators that the U.S economy is heading towards a recession just yet. Citigroup’s shares currently trade at a forward P/E multiple of just 6.38, significantly below the ratio of 12.00 for the financials sector. John A. Levin’s Levin Capital Strategies upped its stake in Citigroup Inc. (NYSE:C) by 367,451 shares during the October-to-December quarter, to 5.23 million shares.

Disclosure: None