Kahn Brothers (Trades, Portfolio) recently disclosed its portfolio updates for the first quarter of 2021, which ended on March 31.
The Kahn Brothers (Trades, Portfolio) group is a hedge fund that serves institutional and high-net-worth clients. Its founding chairman, Irving Kahn, got his start shortly before the stock market crash of 1929, and the firm's original strategy was based on Benjamin Graham's school of value investing. Over time, Kahn Brothers (Trades, Portfolio)' investment philosophy has changed to more of a contrarian value strategy, focusing on metrics such as margin of safety and long-term capital appreciation.
The firm's biggest trades for the quarter were reductions of its holdings in VOXX International Corp. (VOXX, Financial) and BlackBerry Ltd. (BB, Financial). Although the firm did not invest in the common stocks of any new names over the period in question, it did make additions to existing holdings in New York Community Bancorp Inc. (NYCB, Financial) and BP PLC (BP, Financial).
VOXX International Corp
The firm reduced its VOXX International Corp. (VOXX, Financial) holding by 1,658,023 shares, or 54.32%, for a remaining investment of 1,394,263 shares. The trade had a -3.69% impact on the equity portfolio. During the quarter, shares traded for an average price of $20.80.
Originally founded as Audiovox Corp. in 1960, the company renamed itself to VOXX in 2012. The American electronics company primarily manufactures products for the automotive, consumer and biometrics industries.
On May 10, shares of VOXX traded around $16.25 for a market cap of $391.22 million. According to the GuruFocus Value chart, the stock is significantly overvalued.
The company has a financial strength rating of 7 out of 10 and a profitability rating of 3 out of 10. The Piotroski F-Score of 5 out of 9 and Altman Z-Score of 2.78 indicate the company's financial situation is strong. The return on invested capital has consistently been less than the weighted average cost of capital for decades, suggesting the company is destroying value as it grows.
BlackBerry Ltd
During the quarter, Kahn Brothers (Trades, Portfolio) cut its Blackberry Ltd. (BB, Financial) investment by 2,060,975 shares, or 43.57%, leaving a remaining holding of 2,669,291 shares. The trade impacted the equity portfolio by -2.38%. Shares traded for an average price of $11.25 during the quarter.
The Canada-based enterprise software company was once famous for its smartphones, though it was later left in the dust in that regard by companies such as Apple (AAPL) and Samsung (XKRX:005930). BlackBerry now primarily focuses on cybersecurity, communications software and internet of things (IoT) applications.
On May 10, shares of BlackBerry traded around $8.14 for a market cap of $4.60 billion. According to the GF Value chart, the stock has dropped back down to fairly valued levels after an epic runup and short squeeze earlier this year.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 2 out of 10. The cash-debt ratio of 0.91 is lower than 70% of competitors, while the Altman Z-Score of 0.63 indicates the company could be in danger of bankruptcy. The net margin remains relatively stable and came in at -10.91% as of the most recent fiscal year, though the net margin has plummeted to -123.63%.
New York Community Bancorp
The firm added 184,448 shares, or 4.28%, to its New York Community Bancorp (NYCB, Financial) position for a total holding of 4,498,318 shares. The trade had a 0.36% impact on the equity portfolio. During the quarter, shares traded for an average price of $11.51.
As its name suggests, New York Community Bankcorp is a bank headquartered in New York. The state-chartered bank was founded in 1859 and is among the top 50 largest banks in the nation with 225 branches across New York, New Jersey, Ohio, Florida and Arizona.
On May 10, shares of New York Community Bancorp traded around $11.70 for a market cap of $5.49 billion. According to the GF Value chart, the stock is fairly valued.
The company has a financial strength rating of 2 out of 10 and a profitability rating of 4 out of 10. The equity-to-asset ratio of 0.12 is higher than 75% of other banks, which is a positive sign, but the debt-to-equity ratio of 2.36% is performing worse than 88% of peers. The return on equity of 6.97% is about average, while the return on assets of 0.93% is slightly above the industry median of 0.83%.
BP PLC
Kahn Brothers (Trades, Portfolio) also upped its stake in BP PLC (BP, Financial) by 86,969 shares, or 4.76%, for a total investment of 1,912,800 shares. The trade impacted the equity portfolio by 0.33%. Shares traded for an average price of $24.05 during the quarter.
Headquartered in London, BP is one of the world's seven oil and gas "supermajors." It is engaged in the production of energy worldwide, though its largest footprint is in the U.S. Though most of its energy production is through fossil fuels, the company is investing in renewables and has set an ambitious goal to reach net zero by 2050.
On May 10, shares of BP traded around $26.64 for a market cap of $88.60 billion. According to the GF Value chart, the stock is modestly overvalued.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 5 out of 10. The Altman Z-Score of 0.82 indicates the company may have liquidity issues in the near future, though the Piotroski F-Score of 4 out of 9 suggests the financial situation is stable. As shown in the chart below, revenue and Ebitda have been in decline in recent years, which is largely due to unfavorable macro developments such as global oil and gas oversupply and the drop in gasoline demand during 2020.
Portfolio overview
As of the quarter's end, the hedge fund held shares in 42 stocks with a combined value of $646 million. The turnover rate for the quarter was 1%.
The top holdings are Assured Guaranty Ltd. (AGO, Financial) with 9.58% of the equity portfolio, Citigroup Inc. (C, Financial) with 9.36% and New York Community Bancorp with 8.79%. In terms of sector weighting, the firm was most invested in financial services, health care and energy.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.
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