We Sold

April started with a bang, and the S&P 500 index was up +7.8%.  However, the rally was not sustained; June's small losses trimmed the S&P's quarterly return to +5.9%.  Still, after months of brutal retrenchment, techs finally posted a positive return, +13.0%.  Both the basic material and capital goods sectors gained low double-digit returns on the hope that the economy might be hitting bottom.  Financials continued to do well against the backdrop of lower interest rates.  Utilities had the worst performance with a loss of -5.8%.  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 June 30th, portfolio attributes were:

After being up +48% in the 1st quarter, JC Penney was up another +66% in this quarter.  Our beleaguered steel stocks also moved dramamtically in the 2Q.  Worthington Industries was up +48% and US Steel was up +38%.  Our largest holdings are now cash, at 12.0% of the portfolio, followed by MedImmune and Waste Management.  All returns are after dividends.

Sometimes it's not what you buy but what you sell.  We mostly sold in the Q.  For example, we eliminated our position in Bank America and Pall Corp. based on our conclusion that they'd reached full valuation.  We sold Tenneco Automotive on a continuing decline in fundamantals.  We originally had bought the stock on the perception that the industry fundamnetals would soon turn positive.  But in listening to management, we conclude that stainless steel automotive products introduced in Europe will further postpone recovery there for several years.  Tenneco well understands the US replacement cycle.  They do not have a good handle on markets where stainless steel has only recently been introduced.  Gold Leaf continues to search for undervalued companies with sustainable competitive advantages and free cash flows that generate long term value for our clients.