Have you met TINA? TINA means “There Is No Alternative,” a phrase employed by Wall Street pundits to explain the stock market’s recent highs. With CDs and banks paying virtually nothing, investors have been forced into equities. To some extent, the statement is true. Even Gold Leaf has allocated a greater percentage of its portfolios to higher yielding dividend stocks seeking return in a low rate world. And yet, there are limits to everything. This bull market is now the 2nd longest in history, has central bank excesses as its foundation, moves upward despite lackluster earnings, and is propped up by share repurchases. Gold Leaf has never had a shot gun approach to security purchases; our rifle shot method seems even more warranted the higher this market climbs.
In the 3Q, the S&P 500 posted a gain of +3.9% bringing the year’s tally to +7.8%. Tech was the outstanding sector, up +12.4% while interest sensitive groups (utilities and real estate) were negative. As a result, our tech holding performed well. Autodesk was up +34%; Microchip was up +22%. On the other hand, our dividend paying utilities detracted from performance: Duke, First Energy, NiSource, Pinnacle, and Southern were down in the -4% to -9% range.
We’ll take good news whatever the source, and this Q’s was that TransCanada bought one of our holdings, Columbia Pipeline. Our cost basis was around $9.75; the company was acquired for $25.50.
We added to our position in a biotech company that is in clinical trials to develop a fast acting, reversal agent for blood thinners. Patients are admitted to ER all the time who have fallen, for example, are on blood thinners, and may be hemorrhaging internally. To date, there is no antidote. The company’s stock was weak upon the news that the FDA was requiring further information on manufacturing. The good news is that the reversal agent was submitted for accelerated approval based largely on phase 2 data in healthy volunteers. So, the company did not have the extra years to perfect and scale up the complex manufacturing that it would have had during the much more typical phase 3 clinical trial phase usually required for a drug’s approval. We concluded the problems could be worked through and that the stock was a buy. (Thanks to DoctorRX of Seeking Alpha for his insights.)
Gold Leaf is an independent Registered Investment Advisor that buys stocks/bonds in cash positive companies with sustainable competitive advantages. As an independent firm, Gold Leaf provides objective investment management. Our goal is to protect client assets on the downside while participating in most of the market’s upside.
October 1, 2016 Paul F. Rodgers, CFA
Gold Leaf does not provide legal, accounting, or tax advice. Please consult your personal lawyer or accountant.