Steady As She Goes...

The year got off to a rocky start.  January's S&P 500 index was down -1.5% followed by February's further decline of -2.0%.  March rushed to the rescue, and the Q was able to post a +0.3% return.  Anticipating an economic recovery, the basic materials sector returned +11.2%.  Tightening oil supplies and fear of war in the Middle East allowed energy stocks to mov up 9.2%.  Tech continued its malaise with a -7.2% loss.  But telecom was the biggest loser.  Individual stocks such as Nextel, Sprint PCS Group, and WorldCom all lost over -50% in the Q alone.  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:

One of the best performers during the Q was one that was up dramatically in 4Q 01.  Noble Drilling became very undervalued (in our judgement) in the wake of September 11th.  The company continues to retrofit its unique oil rigs and benefit from increased demand for drilling in deeper and deeper waters.  Our largest gainer in the Q was Louisana-Pacific, the wood supply company.  Wood pricing seems to have bottomed, and the company is naturally profiting from the upturn.  Our largest holding is cash, now at 11.4% of the portfolio, followed by MedImmune, Waste Management, and CMS Energy, a Michigan based utility.

Because we have concluded that equity returns will be subdued for some time, we continue to search for higher yielding opportunities.  One stock that caught our eye during the Q was the convertible preferred of Six Flags amusement parks.  The stock was yielding 7.0ish% when purchased and will appreciate with the underlying common equity when Six Flag recovers.  We have also initiated positions in Hospitality Property, a conservatively managed hotel REIT yielding over 8.0%.  We sold all of our Goodrich due to the asbestos uncertainties and the potential for increased liabilities.  Gold Leaf continues to search for undervalued companies with sustainable competitive advantages and free cash flows that generate long term value for our clients.