Kahn Brothers (Trades, Portfolio) disclosed on Monday that the firm increased its holdings of 10 companies during the second quarter, including high-conviction trades in AT&T Inc. (T, Financial), Bristol-Myers Squibb Co. (BMY, Financial), New York Community Bancorp Inc. (NYCB, Financial), Assured Guaranty Ltd. (AGO, Financial) and GlaxoSmithKline PLC (GSK, Financial).
Kahn and his sons Alan and Thomas founded the firm in 1978. According to its website, the firm has evolved from Benjamin Graham’s “discount to net asset purchase” model to a contrarian value strategy “focusing on margin of safety and net capital appreciation” over long time periods. The firm’s top three sectors in terms of portfolio weight are financial services, health care and energy. The former two have a combined weight of 57.3% while energy stocks make up 14.7% of the portfolio.
AT&T
Kahn’s firm invested in 1,284 shares of AT&T for an average price of $33.25 per share. The transaction increased the equity portfolio 0.01%.
Bruce Berkowitz (Trades, Portfolio) mentioned in his June Fairholme Fund (Trades, Portfolio) shareholder letter that Dallas-based AT&T is “endowed with historical advantages and a diversified wireless, wired and media business lines.” The company’s net profit margin and return on equity are near respective 10-year highs and outperform over 84% of global competitors, which include Verizon Communications Inc. (VZ, Financial) and China Mobile Ltd. (CHL, Financial).
GuruFocus ranks AT&T’s profitability 7 out of 10 and lists several positive investing signs, including expanding operating margins, a price-sales ratio near a 10-year low and a dividend yield near a five-year high. Despite this, the website also warns that gross margins are in decline and that asset growth exceeds revenue growth, suggesting inefficient use of assets.
Berkowitz’s Fairholme Fund and John Linehan’s T Rowe Price Equity Income Fund (Trades, Portfolio) established a position in AT&T during the quarter.
Bristol-Myers Squibb
Having added 700 shares in the prior quarter, the firm added an additional 200 shares of Bristol-Myers Squibb for an average price of $54.03 per share.
Bristol-Myers Squibb discovers, develops and markets drugs for various immune disorders through one business segment: Biopharmaceuticals. The company’s financial strength ranks 7 out of 10 primarily due to a solid Altman Z-score of 5.50 and interest coverage of 17.77, significantly above Graham’s required threshold of 5.
New York Community Bancorp
The firm added 852,998 shares of New York Community Bancorp for an average price of $11.99 per share. With this transaction, Kahn’s firm increased the portfolio 1.53%, the highest portfolio impact among the position boosts.
CEO Joseph Ficalora said on July 25 that second-quarter performance reflects the bank’s mission to “grow our assets, reinvest [the bank’s] excess liquidity and reduce operating expenses.” The Westbury, New York-based savings and corporate bank increased its net income $800,000 from the prior quarter’s net income of $106.6 million. Total assets of $50.5 billion represent a 1.3% increase from December 2017, driven by a 4% growth from multi-family loans.
Assured Guaranty
Kahn’s firm added 17,668 shares of Assured Guaranty for an average price of $36.40. With this transaction, the firm increased its portfolio 0.1%.
Assured Guaranty offers financial guaranty insurance that protects holders of debt instruments and other monetary obligations from defaults in scheduled payments. GuruFocus lists one positive investing sign for the company: a dividend yield near a one-year high. However, the website also lists several cautionary signs, including decelerating revenues and a share price close to its 52-week high. Assured Guaranty’s profitability ranks a modest 5 out of 10 as the company’s three-year EBITDA growth rate of -1.60% underperforms 62% of global competitors.
GlaxoSmithKline
Kahn’s firm added 5,950 shares of GlaxoSmithKline for an average price of $40.29. With this transaction, the firm increased its portfolio 0.04%.
GuruFocus lists six medium warning signs for the U.K.-based drug manufacturer, including decelerating revenues, a dividend payout too high, operating loss and a share price near a five-year high.
See also
Kahn’s firm also increased its positions in BlackBerry Ltd. (BB, Financial), Patterson-UTI Energy Inc. (PTEN, Financial), Novartis AG (NVS, Financial), Comcast Corp. (CMCSA, Financial) and Old Republic International Corp. (ORI, Financial).
Disclosure: No positions.
