There has been little reprieve from the downward forces on the stock market.
The drop has not only been deep, but also wide. It seems every sector is being hurt, and most commodities are weaker as well.
I certainly don’t feel able to predict when the upturn will begin, or whether the recovery will be dramatic or very gradual. I do believe it will definitely come.
Year-to-date (February 28), the Model Shadow Stock Portfolio is outperforming the general stock market. The Model Portfolio is down 12.5%, compared to a loss of 18.2% for the benchmark S&P 500 fund. While outperforming the benchmarks is nice, you can’t pay bills with it.
Table 2 highlights the activity in the Model Shadow Stock Portfolio over the most recent quarter.
Table 3 shows the current holdings with their status.
Table 4 lists the rules that the Model Shadow Stock Portfolio follows.
Over the most recent quarter we sold:
All of these stocks were sold because of negative earnings when they were on probation.
Once again, our most recent portfolio screening turned up many more candidates than we could use—a total of 87 stocks qualified using our basic criteria. As you might expect, the qualifiers came from stocks whose prices dropped, rather than book values going up in the price relative to book value criteria.
|Annual Rate of Return (%)|
|Shadow Stock Portfolio||10.7||-12.5||-50.8||-1.8||29.4||17.9||43.7||73.1||10.8||21.4||-7.7||0||-8.9||44.3||22.3||20.7||2||32.3|
|S&P 500 (VFINX)||5.2||-18.2||-37||5.4||15.6||4.8||10.8||28.5||-22.1||-12||-9.1||21.1||28.6||33.2||22.9||37.4||1.2||9.9|
|Vanguard Small Cap (NAESX)||5.5||-21||-36||1.2||15.6||7.4||19.9||45.6||-20||3.1||-2.7||23.1||-2.6||24.6||18.1||28.7||-0.5||18.7|
|DFA US Micro Cap (DFSCX)||7.5||-23.5||-36.7||-5.2||16.2||5.7||18.4||60.7||-13.3||22.8||-3.6||29.8||-7.3||22.8||17.6||34.5||3.1||21|
|*Data as of 2/28/2009.|
For the Model Shadow Stock Portfolio additions, we picked three qualifying stocks that also have significant dividends that currently appear to be safe.
|Golfsmith International Holdings (GOLF)||negative earnings|
|Hardinge Inc. (HDNG)||negative earnings|
|Haverty Furniture Companies (HVT)||negative earnings|
|Johnson Outdoors (JOUT)||negative earnings|
|Rocky Brands (RCKY)||negative earnings|
|Cascade Corp. (CAE)|
|Ennis Inc. (EBF)|
|Standex International Corp. (SXI)|
|Saga Communications, Inc. (SGA)||distributed a reverse stock split of 1-for-4 on 1/28/2009|
Dividends have not been a criterion in the past, and are not a permanent change in the selection process. But in this extended wait for a turnaround, it seems sensible to receive a little bit of income during the wait; the dividends also serve to help slow further price reductions.
The additions to the portfolio are:
Details of each are shown in Table 3.
The country is engaged in a great debate about what our government should do—if anything—to stimulate the economy. Everyone seems to interpret economic history in a way that justifies their opinions.
In any event, there is already government intervention and there will be more over the next three months. Hopefully there will be more direction in the economy and the stock market when I write the July column.
In the meantime, we will update portfolio performance data on AAII.com each month.
|AeroCentury Corp. (ACY)||7.04||18.44||7.04||10.9||2.5||0.3||0.0|
|Allion Healthcare (ALLI)||3.81||7.45||2.60||98.9||14.7||0.6||0.0|
|Avalon Holdings Corp. (AWX)||1.34||6.24||0.92||5.1||5.8||0.1||0.0|
|Cascade Corp. (CAE)*||14.26||53.76||13.87||154.8||4.0||0.6||5.6||currently qualifies|
|Cobra Electronics Corp. (COBR)||0.89||4.40||0.75||5.8||nmf||0.1||18.0||earnings probation (2007q4)|
|D&E Communications (DECC)||5.97||10.68||5.42||86.3||nmf||0.5||8.4||earnings probation (2008q2)|
|Ennis (EBF)*||7.43||19.92||7.06||192.1||4.6||0.5||8.3||currently qualifies|
|Flexsteel Industries (FLXS)||5.17||14.50||5.17||34.0||47.0||0.3||10.1||currently qualifies|
|Greenbrier Companies (GBX)||1.93||28.88||1.86||32.2||2.4||0.1||8.3|
|Hastings Entertainment (HAST)||1.95||8.91||1.26||19.5||3.8||0.2||0.0|
|L.S. Starrett Company (SCX)||5.60||28.50||5.60||37.1||4.2||0.2||8.6||currently qualifies|
|Marlin Business Servs (MRLN)||2.92||9.33||1.19||35.7||7.0||0.2||0.0|
|Nu Horizons Electronics (NUHC)||1.57||6.99||1.00||29.2||14.3||0.2||0.0|
|P&F Industries (PFIN)||1.00||7.00||0.80||3.6||nmf||0.1||0.0||earnings probation (2007q4)|
|Paragon Shipping (PRGN)||3.25||22.61||2.25||88.2||1.3||0.3||61.5|
|Providence Service Corp. (PRSC)||2.41||31.36||0.68||29.7||nmf||0.6||0.0||earnings probation (2008q3)|
|RCM Technologies (RCMT)||1.09||5.18||0.77||13.9||15.6||0.2||0.0|
|Rex Stores Corp. (RSC)||6.86||21.15||5.52||65.5||10.6||0.3||0.0|
|Saga Communications (SGA)||3.13||26.72||3.12||13.2||1.4||0.1||0.0|
|Shoe Carnival (SCVL)||6.47||18.45||6.05||82.3||8.5||0.4||0.0||currently qualifies|
|SigmaTron Int’l (SGMA)||1.55||7.30||1.27||5.9||nmf||0.1||0.0||earnings probation (2008q4)|
|Standard Motor Products (SMP)||1.61||10.02||1.54||30.1||7.3||0.1||0.0|
|Standex Int’l Corp. (SXI)*||8.55||30.00||8.11||105.6||5.6||0.5||9.8||currently qualifies|
|SureWest Communic’ns (SURW)||10.33||19.08||7.25||144.1||86.1||0.5||0.0||currently qualifies|
|Tufco Technologies (TFCO)||4.48||7.49||1.77||19.4||34.5||0.5||0.0|
|Willis Lease Finance (WLFC)||8.49||14.00||7.41||74.7||3.1||0.4||0.0|
*Company is new to the model portfolio.
Source: AAII’s Stock Investor Pro/Reuters. Data as of 3/6/2009.
Approaching Size Limit: Stocks are sold if their market capitalization goes above three times the initial maximum criterion. The current market capitalization maximum for initial screening is $200 million. Stocks are marked “approaching size limit” if their current market cap exceeds 2½ times the initial criterion, or $500 million.
Approaching Value Limit: Stocks are sold once their price-to-book-value ratio goes above three times the initial criterion. The current initial price-to-book ceiling is 0.80. Stocks are marked “approaching value limit” if their current price-to-book-value ratio exceeds 2½ times the initial criterion, or 2.00.
Currently Qualifies: Stock still qualifies as a buy when the screen is run with current data. Stocks that don’t currently qualify as a buy are held until they meet one of the sell rules.
Earnings Probation: If last 12 months’ earnings from continuing operations are negative, the stock is put on probation; if a subsequent quarter has negative earnings prior to 12-month earnings becoming positive, the stock is sold. The date within the parentheses lists the calendar quarter during which the company first reported negative trailing 12-month earnings.
Not Qualified as a Buy for 2 Yrs: Stock has not met the buy criteria for over two years and can be sold if cash is needed.
Stock purchases must meet these criteria:
Stocks are sold if any of the following occur: