According to his 13F filing, his top two positions are Pfizer Inc. (NYSE:PFE) and Citigroup Inc (NYSE:C). Those two positions combined accounted for 28.1% of his total portfolio. Moreover, he has kept adding more shares into those two companies in the first quarter 2013.
Pfizer – the top position with sluggish first quarter performance
Pfizer Inc. (NYSE:PFE) remained Kahn’s top positions, with more than 2.57 million shares, representing 10.9% of his total portfolio as of March 2013. Pfizer Inc. (NYSE:PFE) is considered one of the largest global pharmaceutical corporations in the world, operating in five business segments: Primary Care; Specialty Care and Oncology; Established Products and Emerging Markets, Animal Health; and Consumer Healthcare.
Recently, the company reported disappointing first quarter earnings results. Its first quarter 2013 revenue came in at $13.5 billion, including all Zoetis revenue. The revenue was below the expectation of Wall Street at nearly $14 billion. Its GAAP net income was $2.75 billion, 53.3% higher than the net income in the first quarter last year. However, the much lower net income in the first quarter last year was caused by a significant increase in restructuring charges and lawsuit settlement. The company has decreased its full-year forecast from $2.20 – $2.30 per share down to only $2.14 – $2.24 per share, due to the depreciation of the Japanese yen and the earning loss of 20% after Zoetis’ spinoff. Pfizer is trading at around $29 per share, with a total market cap of around $208.2 billion. The market values Pfizer Inc. (NYSE:PFE) at 8.44 times its EV/EBITDA. At this current trading price, Pfizer Inc. (NYSE:PFE) offers shareholders decent dividend yield at 3.2%.
Citigroup – cheap but low yield
In the first quarter 2013, Citigroup Inc (NYSE:C) remained Irving Kahn’s second biggest position, with more than 1.37 million shares. Citigroup represented 9% of his total portfolio in March 2013. Since the middle of 2012, Citigroup Inc (NYSE:C) has advanced significantly, from around $25.30 per share to nearly $47 per share. The first quarter earnings results of the bank surprised the market with its rising profit. Its net income came in at $3.81 billion, or $1.23 EPS, a growth of as much as 30% compared to the net income of $2.93 billion, or $0.95 EPS in the first quarter last year. Its net interest margin rose to 2.9%. Interestingly, in the first quarter, Citigroup Inc (NYSE:C) released $652 million in loan loss reserve while last year the loan loss reserve release was around $1.2 billion. Its allowance for loan losses stayed at $23.7 billion, accounting for a decent 3.7% of the total loans.
Citigroup is trading at $47 per share, with a total market cap of $142.9 billion. The market values Citigroup Inc (NYSE:C) quite cheaply at 0.74 times its book value. Citigroup pays its shareholders dividends with a very low yield at only 0.1%. The bank intends to spend around $1.2 billion to buy back its shares. Thus, at the current price, the buyback would create an additional yield of only 0.84%.
Higher total yield and much cheaper
Citigroup Inc (NYSE:C)’s total yield of less than 1% is quite low, compared to other banking giant Bank of America Corp (NYSE:BAC). Bank of America is trading at $12.20 per share, with a total market cap of $132.40 billion. Its forward dividend yield stays at 0.3%. What makes me interested is its $5 billion share repurchase plan. The Federal Reserve has already approved Bank of America’s capital plan to spend $5 billion to buy back its shares on the market in the next twelve months. A $5 billion share repurchase could create an additional yield of 3.77% at its current trading price. Thus, Bank of America Corp (NYSE:BAC) could offer investors a total yield of more than 4% in the next twelve months.
In the first quarter 2013, Bank of America reported a 5.4% increase in revenue to $23.7 billion. The net income came in at $2.62 billion, four times higher than the net income of $653 million in the first quarter last year. The allowance for loan and lease losses reduced significantly, from $32.2 billion in Q1 2012 to $22.44 billion in Q1 2013, representing 2.49% of the total loan and leases outstanding. Bank of America seems to be quantitatively cheaper than Citigroup, as it is valued at only 60% of its total book value.
My Foolish take
I am more bullish on both Citigroup Inc (NYSE:C) and Bank of America Corp (NYSE:BAC) with its low valuation of less than their book values. Between the two banking giants, Bank of America would offer more for investors due to its lower valuation, much higher total dividend yield and decent loan loss reserves.
The article Two Recent Biggest Positions in Irving Kahn’s Portfolio originally appeared on Fool.com and is written by Anh Hoang.
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