Kahn Kicks Off 13F Season

 | May 08, 2014 | 2:00 PM EDT
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As everyone else worries and frets about earnings season, I am more excited about the start of 13F season. Much as the Alcoa (AA) earnings report is the kickoff of earnings season, the filing by Kahn Brothers pretty much kicks off the 13F season every quarter. Many of the better-known money managers file at the last minute, but the old value firm, founded by one of Ben Graham's teaching assistants, prefers to get the filing out of the way and get on with the business of picking stocks.

Irving Kahn is one of the great stories of Wall Street. He is 108 years old and still involved in the firm. He was Ben Graham's second teaching assistant for a now-legendary class at Columbia University, and he made his first stock trade back in 1929.  He opened his own firm in 1978, and Kahn Brothers still follows the methods that Irving Kahn learned from Graham 90 years ago.

According to its website, Kahn Brothers invests primarily in undervalued and often unpopular securities that present both a margin of safety and attractive prospects for capital appreciation. It seem to me I have heard that somewhere before.

The firm did not have any outright new buys in the first quarter of the year, but it did add to and trim from existing positions. It increased its stake in BP (BP) in the quarter by 65%. The stock trades at a very small premium to book value and at a huge discount to the Graham number, which includes earnings as well as asset values in order to calculate valuation. The oil and gas giant has been a favorite of value types, as the negativity of the massive Gulf of Mexico oil spill of 2010 has weighed on the stock for several years now, and its valuation lags those of most other major oil companies. I am a big fan of the invisible hand of the market and won't buy BP gasoline or own the stock, but there no denying that it is cheap.

The firm doubled its stake in Landmark Bancorp (LARK). This is very much a "Trade of the Decade"-type bank in Manhattan, Kansas. Landmark gas 30 branches, all in Kansas, with about $823 million in assets. The company is a little more leveraged than I like to see, with a tangible-equity-to-tangible-assets ratio of 5.40%. The company's nonperforming assets ratio is also a bit high at 2.96% of gross loans. But almost one-third of its nonperformers are associated with a single property that should be sold in the second quarter of the year, and that would bring the ratio back down to a manageable number. The bank currently trades at about 90% of book value.

Kahn Brothers also more than doubled its holdings of the troubled wireless-device manufacturer BlackBerry (BBRY). The investment firm originally bought BlackBerry in the third quarter of 2013 as the stock tumbled, and Kahn apparently likes the way the turnaround is developing. BlackBerry is selling its real estate holdings in a sale leaseback transaction to provide the cash needed to fund the operations, and it does appear that it can survive until it can ultimately thrive again.

Kahn Brothers also more than tripled its holdings of PHI (PHI), a provider of helicopter transportation services in the Gulf of Mexico. PHI also provides helicopter services to the oil and gas industry internationally and to non-oil and gas customers and U.S. governmental agencies such as the National Science Foundation. PHI currently owns 278 aircraft: 168 for the oil and gas segment, 104 for the air medical segment and six for other operations. The stock trades at a slight premium to book value and should do very well as oil and gas activity continues to pick up around the world.

More 13F filings will trickle in over the next few business days, and next Thursday night and Friday, the floodgates will break open as everyone rushes to beat the deadline. Viewing the market movements of an investor who was taught value investing directly by Ben Graham and who has stuck with this methodology for 80 years can provide us with some great stock picks and insights into the mind of a great investor.

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