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Stephen Leeb | Roger Conrad | Previous Commentary

First Quarter 2008

Review and Outlook

The first quarter of 2008 was one of the more turbulent in a while. The obvious catalysts were growing fear of a US recession and risk to the global financial system.

The Income & Growth Portfolio’s basic strategy is bottom up. Our focus is first and foremost on the insides of strong companies paying sustainable yields that are becoming more valuable over time. We draw our holdings from as wide a range of sectors as possible and maintain a rough balance between them.

This approach didn’t leave us wholly unscathed by the turmoil of recent months. Several of our holdings lost ground, but for the most part, however, we’ve continued to avoid the major blow-ups that are the greatest danger in difficult markets like this one. All of our holdings reported steady fourth quarter 2007 earnings, with most showing little or no impact from the less-than-ideal economic picture. Equally important, our holdings’ results confirmed once again the security of their distributions in 2008, and several actually announced sizeable increases.

Over the next several weeks, our holdings will begin reporting first quarter 2008 results. As always, we’ll be keeping a careful eye for signs of emerging business weakness that would merit selling. At this juncture, however, almost everything seems to be on very solid ground. And as long as that’s the case, we can expect a strong recovery in share prices by the end of 2008.

At the end of the quarter, Verizon Communications completed the spin off of its rural wireline networks in Maine, New Hampshire and Vermont. The spinoffs were immediately merged with Fairpoint Communications, with the result that Verizon shareholders now own 0.0189 shares of Fairpoint per Verizon share held on March 7. There is no change in the number of Verizon shares you hold, and Fairpoint is paying cash for any fractional shares received. The March 7 closing price for Fairpoint was $9.24 per share.

At this point, Fairpoint represents a very small piece of the Income & Growth Portfolio. If management shows it can execute on plans to integrate the Verizon properties, we will add to the position in the coming months. Until then, it’s a high yielding stock with considerable risks but also substantial potential, and suitable for a small position.

As for the rest of the portfolio, I’m content we have a diversified mix of high quality investments that will weather the rest of this weak economy and market. Just as important, I believe that the portfolio is positioned for the better times to come, which I am forecasting to be later this year.

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Disclaimer: The specific securities identified and described herein do not represent all of the securities purchased, sold, or recommended for advisory clients, and that the reader should not assume that investments in the securities identified and discussed were or will be profitable. The mention of securities in this letter should not be deemed as a recommendation to buy or sell the securities. Leeb closely monitors the companies held in client portfolios. If a company’s underlying fundamentals or valuation measures change, Leeb will reevaluate its position and may sell part or all of its holdings.

"The traditional allocation is among stocks, bonds, and cash. We think this is a meaningless approach and investors should think strictly in terms of growth, income, and market insurance."

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