Gleaning Insight From a Legend

• ByTim Melvin, RealMoney.com Contributor
• On 10:00 am EDT, Thursday April 30, 2009

We are now entering a holiday season for value investors. Over the next two weeks, we will see a flood of 13HF filings from money managers, which give us a chance to peek into the holdings and activities of some of the best minds of Wall Street.

Looking into the holdings for growth and momentum investors with high turnover has proven to be a worthless exercise over the years. By the time the filing is recorded, the portfolio is already substantially different in many cases. Value and activist investors, however, tend to be long-term holders of stocks and bonds, so it is possible to gleam valuable investing ideas from the reports.

Among the early filers this quarter is favorite Kahn Brothers, founded by Irving Kahn and a long-term participant in the Wall Street circus. Kahn started back in the 1930s as a clerk and worked with Ben Graham for a period of time. He founded Kahn Brothers back in 1978 and at age 103 still goes into the office. The firm is run today by his son Tom, but Dad is watching.

The firm, keeping with its long-term value philosophy, was not real active in the first quarter. It did a little buying in some names it already owned and trimmed a few others. I decided not to comment on any of the selling activity because it was small in nature and could easily be portfolio realignment rather than a reflection of the stock in question.

Khan Brothers added no new names to the portfolio and sold out no position in its entirety. When these guys say long-term holders, they mean it

The firm did add a little to its Audiovox position. The electronics company is a classic Graham net-net investment. The net current assets of the company add up to just about 2 times the current stock price.

Audiovox specializes in mobile audio and video products and recently introduced the first rear-seat video system featuring a fully integrated PlayStation 2 game console. As you can imagine, the recession and weakness in the auto markets has hurt business, but the company is staying near breakeven and not burning its cash rapidly. Also not surprising, its shareholders include several other value firms, such as Seth Klarman's Baupost fund and Donald Smith & Co. .

Syms is another classic Ben Graham-style stock that Kahn Brothers was buying in the first quarter. The off-price retailer currently operates 33 stores primarily in the Northeast and Mid-Atlantic regions.

The shares are cheap trading at less than half of tangible book value. The real asset value of the company may be higher as it owns 21 of its own stores and carry them on the books at cost minus depreciation. Although real estate had dropped substantially in the past two years, Syms has owned some of these locations for a long time and they may be worth more than book value. The underlying retail business is weak as can be expected but Syms has a strong balance sheet.

One of the biggest percentage increases in holdings was Monsanto. Kahn Brothers purchased over 200,000 shares of the agriculture company in the first quarter.

Monsanto has seen its shares fall almost in half over the past several months as the global recession took hold, but the world will always need food. Monsanto's seed, fertilizer and other products help feed the planet more efficiently with increased yields at lower overall costs.

The company is expected to experience mid-teen's revenue growth and increasing margins in the years ahead. This should add up to earnings growth in the high teens for at least the next five years. It has higher multiples than I usually pay, but the growth potential is very real and Irving Kahn has proven his mettle as a stock picker over more decades than I have been alive.

The firm does not shy away from controversial stocks. They bought more shares of bond insurer MBIA in the quarter. MBIA's move to split into two companies -- separating the stable municipal business from the riskier structured products division -- was not well received by investors. One other noted value investor, Martin Whitman of Third Avenue Management, is suing the company over the restructuring calling it a fraudulent transfer.

MBIA has been one of the major casualties of the real estate crisis as losses on losses on mortgagee backed securities insured by the company caused ruinous losses. The stock, trading around $80 a share when the crisis began in 2008 now fetch less than $5 a share.

The New York Times is another stock that has gotten little love from investors. The gray lady has seen her shares fall over 70% over the past year and currently trades for 10% of 2005 levels.

Revenue and earnings at the company have been crippled by the decline in newspaper revenues due to a weak economy and a trend towards electronic media over print. Moody's recently downgraded the company's debt even further, citing the ongoing deterioration of advertising revenues and a rising debt to EBITDA level.

Despite the grim outlook, Kahn Brothers bought more shares in the quarter. Other purchases in the quarter included Old Republic and Sallie Mae.

Over the next two weeks, we will get a look at what noted investors have done with their portfolios. It is always nice to hear them talk, but even more instructive to gain ideas and insight into what they actually do.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Audiovox and Syms to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

Buzz up!