VRAY - Tracking Kahn Brothers Portfolio - Q4 2022 Update

2023-03-06 23:01:05 ET

Summary

• Kahn Brothers’ 13F portfolio value increased from ~$642M to ~$760M this quarter.
• Most of the stakes saw minor adjustments during the quarter.
• The portfolio continues to be very concentrated with the top five positions accounting for ~49% of the 13F holdings.

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 2/15/2023. 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 Q3 2022.

This quarter, Kahn Brothers’ 13F portfolio value increased ~18% from ~$642M to ~$760M. The number of holdings remained steady at 45. The largest individual stock position is Assured Guaranty which accounts for ~10% of the portfolio. Largest five positions are Assured Guaranty, Merck, BP plc, Patterson-UTI Energy, and Bristol Myers Squibb. Together, they account for ~49% 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:

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 $12.28. Last several quarters have seen only minor adjustments.

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

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. The three quarters through Q2 2022 had seen a ~34% stake increase at prices between ~$46 and ~$72. The stock currently trades at $52.18, and the stake stand at ~7% of the portfolio. Last two quarters also saw minor increases.

New York Community Bancorp ( NYCB ): NYCB is a 6.75% 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 in Q2 2022 at prices between $8.65 and $11. The stock is now at $8.61. Last two quarters also saw minor increases.

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 4.95% of the portfolio even though the position-size was reduced by over two-thirds to 9.96K 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 ~$3776. Last several quarters have seen only minor adjustments.

VOXX International ( VOXX ): VOXX has been in the portfolio since 2001 when the company was named Audiovox. The current position stands at 3.33% 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 ~45% stake increase over the last three quarters at prices between ~$6 and ~$13. The stock is now at ~$12. There was a minor ~3% further increase this quarter.

Note : Kahn Brothers owns ~14% of the Class A shares through the ownership of ~2.94M shares – John J. Shalam has majority control through ownership of the Class B shares.

IDT Corporation ( IDT ): IDT is a 1.74% 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 $30.20. It is a very long-term position that has returned many-fold over the years. Last two years have seen only minor adjustments.

Webster Financial ( WBS ): In April 2021, 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 $51.60. Last four quarters have seen only minor adjustments.

Stake Decreases:

Assured Guaranty ( AGO ): AGO is currently the largest position in the portfolio at 10.09%. 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 through 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 $57.74.

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

Merck ( MRK ): MRK is currently at ~10% 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 ~$111. Last seven quarters have seen only minor adjustments.

Note: In May 2021, Merck spun-off Organon & Company ( 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.

BP p.l.c. ( BP ): BP stake was first purchased in 2010. The position remained minutely small for the next two years. The bulk of the current large (top three) ~10% 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 $40.42. Last six quarters have seen only minor adjustments.

Patterson-UTI Energy ( PTEN ): PTEN is currently at 9.91% 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. Q2 2022 saw a similar reduction at prices between ~$14.30 and ~$19.80. The stock currently trades at $15.12. There was a minor ~7% trimming over the last two quarters.

Bristol Myers Squibb ( BMY ): The large (top five) 8.66% 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 $68.90. Last seven quarters have seen only minor adjustments.

Pfizer Inc. ( PFE ): PFE is a ~7% 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. Next three quarters had seen minor increases while last two quarters saw marginal trimming. The stock currently trades at $41.11.

GSK plc ( GSK ): GSK is a 5.68% 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 $34.45. 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. There have only been minor adjustments since.

Note: The purchase price range quoted above is skewed because of the spinoff of Haleon plc in July. Shareholders received 1 share of Haleon for each GSK. In addition, GSK shares held were adjusted in the ratio 4:5.

Haleon plc ( HLN ): The 1.49% of the portfolio stake in HLN came about as a result of the spin off from GSK plc. They had 1.43M shares of GSK for which they received the same number of HLN shares. They also increased the stake marginally since. Shares started trading in July at $7.50 and currently goes for $7.85. There was a minor ~2% trimming this quarter.

ViewRay, Inc. ( VRAY ): The very small 0.96% of the portfolio VRAY stake saw a ~300% stake increase over the four quarters through Q2 2022 at prices between ~$2.40 and ~$7.60. The stock currently trades at $4.09. Last two quarters have seen only minor adjustments.

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. Next two years had seen a ~75% selling at prices between ~$4.50 and ~$25. The stock is now at ~$4. It is currently a 0.61% of the portfolio position. There was a ~6% trimming in the last two quarters.

The spreadsheet below highlights changes to Kahn’s 13F stock holdings in Q4 2022:

For further details see: