Quite a Roller Coaster...

In the first days of January, the S&P 500 index shot out the gate only to quickly falter and post a loss for the 1Q of -3.2%. Disappointing earnings and fear of war combined to lower the averages.  In the last weeks of the 1Q, the market whipsawed on perceptions of what was occurring in Iraq.  All returns are after dividends.

The tech sector continued the rally it started in last year's 4Q and posted a follow-on return of +1.4% for this Q; the healthcare sector was just behind with +1.3%.  The big loser was again the telco sector, down -14.3%.  Surprisingly, during a time of war, the consumer staples sector did not offer safe haven and was down -6.4%.  All returns are after dividends.

Gold Leaf is a lower risk investment firm that buys stocks when they are out of favor at lower multiples. On March 31st, portfolio attributes were:

Our healthcare positions, particularly Lab Corp. and MedImmune, were up over +20% for the Q.  We consider these "second generation" drug companies to be core holdings as they address areas of the healthcare field that older players, e.g., Merck & Bristol-Myers, cannot.  Our decliners were those holdings with the greatest economic cycle exposure.  All returns are after dividends.

During the Q, we were net purchasers.  We bought a conservatively run, Chicago based savings & loan company.  On a valuation basis, the stock traded at 10.0X this year's earnings and at 1.6X book value.  Because of unitary banking, the Chicago market is unusually fragmented, and, at some point, this S&L will be acquired.  We also purchased shares of the leading healthcare benefits consultant.  The company is extremely well managed and for years has been slowly talking market share from its competitors.

We do not believe in timing the market; i.e., we do not switch clients in and out of cash trying to anticipate the market's short term moves.  Instead, Gold Leaf continues to search for undervalued companies with sustainable competitive advantages and free cash flows that generate long term value for our clients.