After conducting our quarterly review of the Model Shadow Stock Portfolio, one stock is being sold from the tracking portfolio and it is being replaced by one new addition.
Sell Alert
AV Homes Inc. (AVHI) has been on earnings probation since its fourth-quarter 2017 earnings release on February 22. At that time, the company’s trailing 12-month adjusted loss was $0.83 per share, which placed it on earnings probation. On April 26, the company reported an adjusted (non-GAAP) loss of $0.10 for its fiscal first quarter, expanding its trailing 12-month adjusted loss to $1.04. Because the company went two quarters with trailing adjusted earnings being negative and it reported an adjusted loss for the latest fiscal quarter, AV Homes has triggered the portfolio’s earnings sell rule and is being removed from the Model Shadow Stock Portfolio.
Buy Alert
With the proceeds from the AV Homes sale and the existing cash position of the Model Shadow Stock Portfolio, there were enough funds to take a position in one company at roughly the average position size for the existing holdings in the tracking portfolio. The addition is:
Based on Universal Stainless & Alloy’s closing price of $23.92 on May 30, we suggest paying no more than $26.88. To calculate the maximum buy price based on the price-to-book-value ratio, multiply the current share price by the ratio of the maximum price-to-book ratio to be considered for the Model Shadow Stock Portfolio (currently 1.0) to the current price-to-book ratio of the stock. The price-to-book ratio for Universal Stainless & Alloy as of May 30 was 0.89, so the calculation is: [$23.92 × (1.0 ÷ 0.89)] = $23.92 × 1.124 = $26.88.
The next monthly Model Portfolios Update will take place on Friday, June 15. That day, the monthly Model Portfolios Update email will go out and the Model Portfolios area of AAII.com will be updated with new data and the portfolio changes outlined in this email.
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