We're Down (Now We're Unhappy...)

The carnage continued.  July saw the S&P 500 index down -7.8%, Sept. was -10.9%, and the quarter down -17.3%.  Why the tumult?  Corporate earnings are sagging again.  The fear of an Iraqi war is adding uncertainty to an already troubled market.  During the Q, the S&P 500 index's healthcare sector was down just -7.2%.  Tech and teleco resumed their freefalls; those sectors were down -25% each.  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 September 30th, portfolio attributes were:

The bright spot of the 3Q was occupied by Pharmacia, the drug company, up +10%, as it approaches the time that it will be acquired by Pfizer.  Cedar Fair held its own while our small bank stocks performed well, essentailly flat for the Q.  But with the economy slowing, the basic material stocks, Louisana-Pacific and Carpenter Technology (a specialty steel manufacturer) were down significantly.  Our largest holdings in the portfolio are now Pfizer at 6.0%, a Smurfit-Stone convertible preferred at 5.1%, and Waste Management at 4.6%.  All returns are after dividends.

We sold our entire position in Lakeland Financial, Occidental Petroleum, and Worthington Industrues because they had reached full valuations.  The bank, First Source, was sold because of decling value of its aircraft portfolio.  The company tried to liquidate it with care following 9/11, but we fear the weakening economy will continue to thwart them.  We purchased a basket of electric utility stocks which have suffered over post-Enron missteps in the wholesale energy arena.  We've also purchased FleetBoston, a dominant New England bank.  The company is refocusing its efforts on core strengths and is thought to be an excellent takeover candidate.  Gold Leaf continues to search for undervalued companies with sustainable competitive advantages and free cash flows that generate long term value for our clients.