Market Buoyancy

The S&P 500 index's 3rd Q market continued its buoyant stance and posted a gain of +2.6%.  Tech was once again the leader up +10.8% as optimistic comments from industry leaders and investor rotation into that sector boosted the stocks.  The materials sector was up +6.4% on the anticipation that the economy's recovery is of substance.  The poor performer for the Q was the healthcare sector (down -4.6%) as fears of increased generic competition served to lower confidence about companies' forward growth rates.  All returns are after dividends.

Gold Leaf is a lower risk firm that buys large cap stocks when they are out of favor.  Its goal is to protect client assets on the downside while participating in most of the market's upside.  On September 30th, portfolio attributes were:

For the 2nd Q in a row, our biggest gainer was Carpenter Technology, a specialty steel processor, up +38% (and +74% since Jan. 1).  JC Penney was up +28% while the dental distribution company we bought in the 2nd Q was up +27% in the 3rd Q.  With the healthcare sector as a whole performing poorly, our healthcare positions fared no better, declining in the mid-single digits.  While we agree that generic products will play an increasingly competitive role for selective companies, that "news" is already reflected in the stock prices.  Many of the drug companies we analyze are now trading at compelling valuations, and we are adding to positions where appropriate.  Our three largest holdings are now Pfizer, Patterson Dental, and Midwest Banc Holdings.  All returns are after dividends.

With Bank One trading at a full valuation of 2.3X book value, the stock was sold on this full price and the news that the company allegedly allowed a hedge fund to trade their mutual funds after hours.  If this is true, it is unethical, and we are glad we no longer own the stock.  For our more income sensitive clients, we purchased convertible preferred shares of a telecommunications company that pay 7.75%.  Gold Leaf continues to search for undervalued companies with sustainable competitive advantages and free cash flows that generate long term value for our clients.