We exited the second quarter of 2005 with an empty feeling. Yes, the domestic economy is strong, and yes, stock valuations seem reasonable, by and large. Nonetheless, something doesn’t feel quite right. We are probably just concerned about the overhangs of rising interest rates, rapidly rising energy costs, and inflated housing prices. We are comfortable with how portfolios are positioned, but don’t expect large returns from the overall equity markets.

So, given this lukewarm outlook, how are we positioned? Readers who have followed us for a while are familiar with our penchant for healthcare and life sciences stocks. It is a sad reality that we are getting older and breaking down more often. It is a happy truth that medicine can usually do something to repair us. We invest in companies that offer cures, remedies, and enabling technologies to help us all live longer, healthier lives (doing our part to help aggravate the Social Security crisis).

We have recently been building positions in Qiagen, a Dutch/German provider of, get this, nucleic acid purification products. For all the noise about breakthroughs in genetic research over the last few decades, there have been remarkably few practical applications for this branch of science. Over the last few years, however, practical and commercially viable applications of genetic tools have emerged, spurring a new surge of research not just from academic and NIH funded research institutions, but from companies that have R&D budgets, such as pharmaceutical and diagnostic companies. Qiagen has a proprietary position in the preparation of DNA and RNA samples for research, diagnostic or forensic applications. We have spoken with several of their customers, and all indicated that the company’s products are excellent and quite possibly irreplaceable. After observing the company for several years, we became comfortable with its valuation and we think we have found a good entry point.

During June, the announcement of Fresenius Medical Care’s new hemodialysis machine buoyed the share price. With the new model, the 5008, Fresenius is seeking to address the future challenges of dialysis therapy. These challenges include the growing number of patients afflicted with multiple diseases, as well as increasing demands on treatment quality, despite the staffing and financial constraints of the health care sector. The 5008 offers the highest treatment quality in the industry at low cost.

We have also seen selective opportunities in technology stalwarts that are trading at historically low valuation measures. Opportunities to buy some of these companies do not present themselves often, and we will probably add a few in the coming weeks. While we certainly don’t expect to see the growth of the late 1990’s, we do think that in some cases the market has become too bearish on their prospects. We expect solid and possibly accelerating growth, which will translate in good returns.

You may have read about Nielsen Media in the news recently. News Corps.’ Rupert Murdoch is leading a campaign to get Congress to regulate Nielsen. They argue that Nielsen’s new technology for audience tracking is undercounting News Corps.’ Fox Television’s ratings. Nielsen and the ultimate customer (the advertisers) argue that the audience was never as strong as Fox thought. While it is preferable to avoid controversy, we do think it is a good sign (and somewhat ironic) that Murdoch found it necessary to whine to the Federal Government about Nielsen’s market power.

These are interesting times in the market. There are many opportunities to investigate, as well as potholes to avoid. We are as excited as ever about our craft and remain dedicated to investor returns.