AAII Model Shadow Stock Portfolio Changes

After conducting our quarterly review of the Model Shadow Stock Portfolio at the end of February, none of the current Shadow Stock holdings met any of the portfolio’s sell rules in terms of earnings, price-to-book ratio or market cap.

Sell Alert

However, it is the policy of the Model Shadow Stock Portfolio to remove stocks of companies whose board of directors has approved or recommends an acquisition and the current share price basically reflects the proposed acquisition price.

Hardinge Inc. (HDNG) announced that it has entered into a definitive merger agreement to be acquired by an affiliate of Privet Fund Management LLC. Therefore, Hardinge is being removed from the Model Shadow Stock Portfolio.

Under the terms of the agreement, Privet will acquire all shares of Hardinge common stock not currently owned by Privet for $18.50 in cash. As of the close on March 7, 2018, Hardinge shares were trading at $18.36 per share, less than 1% below the acquisition price of $18.50.

Buy Alert

With the proceeds from the Hardinge 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. That addition is:

• Container Store Group Inc. (TCS); alert price, $4.82 per share

Based on Container Store’s closing price of $4.92 on March 7, we suggest paying no more than $5.23. 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 Container Store as of March 7 was 0.94, so the calculation is: [$4.92 × (1.0 ÷ 0.94)] = $4.92 × 1.064 = $5.23.

The next monthly Model Portfolios Update will take place on Thursday, March 15. That day, the monthly Model Portfolios Update email will go out and the Model Portfolios area of AAII will be updated with new data and the portfolio changes outlined in this email.