On The Rebound

Following three years of losses, the S&P 500 index continued its positive climb and finished the year up +28.7%.  Two investor perceptions grew stronger during the 4th Q: the economic recovery is for real, and progress, however slow, is being made in the Middle East.  Reflecting the economic confidence, the S&P 500's materials sector was up +23% for the 4Q and +38% for the year.  Tech rebounded from its multi-year lows with a +46% return for the year aided by the Q's +13% gain.  Consumer discretion stocks picked up +15% for the 4Q and +37% for the year.  Telco lagged, up only +7% for the year as increased price competition trimmed companies' earnings.  The market rebounded because the economy and investor confidence rebounded.  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 December 31st, portfolio attributes were:

Carpenter Technology, a specialty steel processor, was our best performer, up +140% for the year.  (In fact, we have begun to trim positions.)  FleetBoston agreed to be acquired by Bank of America, and the stock responded with a +85% gain for the year.  Some of our smaller, Mid-western banks have also fared well as the Fleet acquisition is most likely a portent of things to come.  MedImmune, down -7% for the year and a stock we like, botched the marketing of the FluMist vaccine.  The science is solid; the marketing strategists have a year to correctly position the product.  Our three largest holdings are now Pfizer, Patterson Dental, and Lab Corporation of America.  All returns are after dividends.

In the on-going search for income, we purchased shares in REIT and preferred funds yielding in the neighborhood of 7.50%.  We added to MedImmune, trimmed Carpenter Technology, eliminated Allegheny Power, and initiated positions in a personal care company.  Gold Leaf continues to search for undervalued companies with sustainable competitive advantages and free cash flows that generate long term value for our clients.