2001: We Bought

Following the S&P 500 index's 2000's -9.1% market decline, 2001 proved, not to be better, but worse.  A recession reduced corporate earnings and combined with the terrorists' actions to drive the return on the S&P 500 down another -11.9%.  The 4Q was the only bright spot as the market anticipated economic recovery.  While the S&P 500 index's tech sector was up +35% in the 4Q, it still dropped -27% for the full year.  Utilities, now transforming themselves into growth companies, were up only +3% for the Q but were down -20% for the year.  The best performing sector was th consumer discretionary sector up +19% for the Q and +5% for the year.  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 December 31st, portfolio attributes were:

Some of our best performers during the Q were Noble Drilling and Home Depot, up +45% and +33% respectively.  Both had suffered prior to 9/11 on fears of economic weakness.  They subsequently became cheaper after 9/11, and we were buyers.  For the year, our downtrodden Service Corp and JC Penneys were our biggest winners with each up over +100%.  Covanta Energy was the disappointment of the yeat as delay in payment from California utilities upset the company's cash flows.  Our largest holding is still cash, now at 9.1% of the portfolio followed by Home Depot and MedImmune.  All returns are after dividends.

During the Q, we were net buyers.  We bought Laboratory Corp., a leading medical testing company.  Outsourcing is the dominant trend at doctors' offices as medical tests become increasingly complex.  We also purchased Scottish Annunity, a life reinsurer trading close to book value.  We've sold most of our Philip Morris.  The stock has had a good run from where we purchased it; most of the good news is already reflected in the price.  Gold Leaf continues to search for undervalued companies with sustainable competitive advantages and free cash flows that generate long term value for our clients.