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Kahn Brothers' Top 6 Buys in the 2nd Quarter

Kahn Brothers (Trades, Portfolio), founded by legendary investor Irving Kahn, disclosed this week its top six buys for the second quarter were Merck & Co. Inc. (NYSE:MRK), Seaboard Corp. (SEB), Bristol-Myers Squibb Co. (NYSE:BMY), Assured Guaranty Ltd. (NYSE:AGO), GlaxoSmithKline PLC (NYSE:GSK) and Citigroup Inc. (NYSE:C).

The New York-based firm follows a contrarian value strategy that branches from Benjamin Graham's "discounted to net asset purchase" model, according to the firm's website. Kahn employs a bottom-up stock selection approach and invests in undervalued equity securities that are usually out of favor in the market.

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As of quarter-end, the firm's $800 million equity portfolio contains 44 stocks, of which 13 are new positions. The firm's top sectors in terms of portfolio weight are health care and financial services, with the former representing 33.40% of the portfolio and the latter representing 33.29%.

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Merck

The firm added 9,839,726 shares of Merck, increasing the stake 1,183.53% and the equity portfolio 10.32%. Shares averaged $80.15 during the quarter.

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The Kenilworth, New Jersey-based drug manufacturer said last week that worldwide sales for the quarter ending June 30 were $11.8 billion, up 12% year over year, driven by the company's "science-led strategy and execution across [Merck's] key growth pillars" according to CEO Kenneth Frazier. The solid revenue growth, in addition to expanding profit margins and a Piotroski F-score of 7, contribute to a strong GuruFocus profitability rank of 7.

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Ken Fisher (Trades, Portfolio) and David Carlson (Trades, Portfolio) also increased their positions in Merck during the quarter.

Seaboard

The firm added 5,925 shares of Seaboard, increasing the position 80.89% and its equity portfolio 3.06%. Shares averaged $4,293.67 during the quarter.

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The Merriam, Kansas-based conglomerate operates six food production and transportation businesses: pork, commodities, marine, sugar, power and turkey. GuruFocus ranks Seaboard's financial strength 7 out of 10 on positive signs like a strong Altman Z-score of 3.59 and debt ratios that outperform 63.28% of global competitors. Despite this, Seaboard's profitability ranks a poor 4 out of 10 on the heels of profit margins underperforming over 89% of global conglomerates.

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Bristol-Myers Squibb

The firm added 513,930 shares of Bristol-Myers Squibb, increasing the holding 101.90% and its equity portfolio 2.91%. Shares averaged $46.57 during the quarter.

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The New York-based company discovers, develops and markets drugs for cardiovascular, oncology and immune disorders. GuruFocus ranks Bristol-Myers' profitability 8 out of 10 on several positive signs, which include expanding profit margins and returns on equity that outperform 93.58% of global competitors.

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The Eaton Vance Worldwide Health Sciences Fund (Trades, Portfolio) established a 385,152-share stake in Bristol-Myers Squibb during the quarter.

Assured Guaranty

The firm added 326,930 shares of Assured Guaranty, increasing the position 26.38% and its equity portfolio 1.72%. Shares averaged $44.11 during the quarter.

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The Hamilton, Bermuda-based company offers financial guaranty insurance that protects holders of debt instruments and other monetary obligations from defaults in scheduled payments. According to GuruFocus data, Assured Guaranty's equity-to-asset ratio of 0.49 outperforms 80% of global competitors while its debt-to-equity ratio of 0.19 outperforms just 56.41% of global competitors.

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GlaxoSmithKline

The firm added 328,464 shares of GlaxoSmithKline, increasing the holding 25.73% and its equity portfolio 1.64%. Shares averaged $40.14 during the quarter.

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The U.K.-based drug manufacturer develops therapies and vaccines for respiratory and antiviral diseases. GuruFocus ranks GlaxoSmithKline's profitability 8 out of 10 on several positive signs, which include expanding profit margins and a return on equity that outperforms over 98% of global competitors. Despite this, GlaxoSmithKline's financial strength ranks a modest 5 out of 10 as weak debt ratios offset a solid Piotroski F-score of 6.

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Citigroup

The firm added 182,664 shares of Citigroup, increasing the position 19.84% and its equity portfolio 1.60%. Shares averaged $66.92 during the quarter.

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GuruFocus ranks the New York-based bank's financial strength 4 out of 10: Although the company has a strong Beneish M-score of -3.03, Citigroup's debt ratios are underperforming over 70% of global competitors.

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Disclosure: No positions.

Read more here:

  • Mario Gabelli's Top 6 Buys in the 2nd Quarter
  • Matthews Pacific Tiger Fund's Top 5 Buys of the 2nd Quarter
  • US Markets Remain Significantly Overvalued Despite Late-Summer Cooldown



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This article first appeared on GuruFocus.