1st Quarter Update
The end of the first quarter of 2005 brought a steady slide in the major market indexes, which are all down for the year. Our account positions, with a good share of energy and materials companies, held up well for the most part. Outperformance is nice, but we continue to look for the kinds of undervalued companies and special situations that will create meaningful gains. That is what drew us to energy last year, before the momentum traders took these companies to another level (and we are glad to be along for the ride for the time being). What looks tempting now? Big financials, like JP Morgan Chase, now trade a multi-year lows and sport dividend yields of close to 4%. As with many beaten down sectors, a lot of bad news is already reflected in the low prices, so this is an area to watch. The same may be true for healthcare companies, like Pfizer, although it is hard to see an immediate catalyst.

Smaller, undervalued companies are great to find. The mineral company AWC looks like a solid bet on aluminum, as does the shipping company TRMD. Drug trial company SFCC continues to do well, albeit with a bit too much volatility. We continue to monitor the media/cable companies (Viacom, Comcast) and hope to see a restructuring in Viacom finally make our patience pay off. Sometimes a terrifically managed company is undervalued just because people doubt it can continue to do as well. This looks to be the case with companies like Fortune Brands and Praxair.

We always strive to anticipate trends, not chase them. We also try to buy shares of companies when frustration and pessimism are peaking and the share price is bottoming, as long as the fundamentals of a company suggest a return to better times is not only possible but probable. This is not easy, but with markets increasingly being pushed around by hair-trigger hedge funds, we believe that our patient approach can take advantage of temporary market mispricings and build client portfolios that can outperform the market averages over time yet provide the type of downside protection that value-oriented investing makes possible. As always, we thank our clients for their trust and confidence, and never take them for granted.
- posted by Jay @ 3:38 PM