13F season is starting to gain momentum before next Monday's deadline. The amount of media attention will start growing on Friday, and by Monday the anchor desks of the major networks will be all sorts of worked up over the filings of the big, well-known investors. I have my own team of select value, distressed and bank stock specialists whom I follow, who are not as well known but have proven themselves to be a valuable source of investment ideas. Two firms are consistent early filers and I consider them my leadoff hitters for 13F season.
Donald Smith andCompany is a classic book value-oriented value investing firm. It buys stocks trading in the lowest decile of all stocks based on price to book value and conduct what it calls detailed fundamental analysis to find those that have the potential for a significant earnings recovery in the next two to four years. The firm has been around since 1983 and has racked up a solid track record over the last 33 years. While he was in college at UCLA, Mr. Smith worked with Ben Graham on his PE ratio study that turned out to be his final piece of research.
The firm's current report shows far more selling than buying for the first quarter of the year. Donald Smith and Company sold shares of 45 companies in the quarter and opened new positions or added to just 24. I have been talking about the lack of asset-based opportunities for some time, and apparently Mr. Smith and his team are having the same difficulties finding safe and cheap stock to buy that I have in the current market.
The firm is a far bigger fan of the big financial stocks than I have even been. He increased his position in Action Alerts PLUS charity portfolio holding Citigroup (C ) by 20% if the first three months of the year and opened a new stake in Bank of America (BAC). He also made a small net purchase of AIG (AIG) in the quarter. While they all appear cheap on a price to book value basis, I have long maintained that there are way too many moving parts to the big banks to accurately value them, and have pretty much avoided them over the years.
The firm continues to like undervalued gold stocks. In the first quarter it was a buyer of new stakes in Newmont Mining (NEM), Iamgold (IAG) and Pershing Gold (PGLC). He also increased his position in shares of Primero Mining (PPP) by 28% during the quarter. He came into the year with a substantial stake in undervalued gold miners, and it appears to be paying off for him in 2016, as gold prices have rallied about 20%.
Kahn Brothers is another firm that files early every quarter and also has historical ties to the founder of value investing. Founder Irving Kahn was Ben Graham's teaching assistant in the classroom at Columbia where value Investing was born. The firm still uses a deep value philosophy to manage almost $1 billion in client assets. Mr. Kahn passed away last year, but nothing changed at the firm. His son Thomas Graham Kahn worked with his father for 45 years and currently heads the firm.
Kahn Brothers was also doing more selling than buying in the first three months of the year. It sold part or all of 24 positions while adding to just eight. There were no new positions in the quarter. I am apparently not the only one experiencing the value drought in 2016. There are just not a lot of cheap stocks around right now, and the buying and selling activities of these value investors reflect that fact.
The majority of its buying was in large blue chip stocks. It added to BP (BP), GlaxoSmithKline (GSK), Citigroup (C ),Bristol Meyers (BMY), IBM (IBM) and Comcast (CMCSA) during the first three months of the year. On the more adventurous side, they continue to be buyers of BlackBerry (BBRY) as well as car and consumer audio manufacturer VOXX International (VOXX). Large sales included Volvo (VOLVY), Old Republic (ORI) and Landmark Bancorp (LARK). It also trimmed positions in large cap pharmaceutical companies Merck (MRK) and Dividend Stock Advisor portfolio holding Pfizer (PFE).
My two value investing leadoff hitters were both doing more selling than buying in the first three months of 2016. It will be interesting to see if that pattern holds as we see more filings later this week.