AAII Model Shadow Stock Portfolio Changes

After performing his quarterly review of the Model Shadow Stock Portfolio, Jim Cloonan made the following changes:

Sells:

• Alamo Group Inc. (ALG) because its price-to-book-value ratio of 3.08 (as of the close on 11/29/2017) exceeds the valuation limit for the portfolio and its market capitalization of $1.39 billion exceeds the size limit for the portfolio. Shadow 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 1.00. Shadow Stocks are sold once their market capitalization goes above three times the initial criterion. The current initial market cap ceiling is $400 million.
   
• Global Power Equipment Group (GLPW) following its restatement of earnings that now shows negative annual earnings for each of the last two fiscal years. Shadow Stocks are sold once earnings turn negative for the trailing 12 months (last four fiscal quarters) and the company reports a subsequent quarter of negative earnings.

Buys:

With the proceeds from the sale of Alamo Group, these stocks were added to the Model Shadow Stock Portfolio:

• The New Home Company (NWHM) was added at $11.70 per share
   
• Olympic Steel Inc. (ZEUS) was added at $20.09 per share

Jim suggests paying no more than $12.06 for New Home Company and no more than $22.86 for Olympic Steel. However, he says you can go 10% higher for both given the lack of qualifying stocks. Only five stocks currently qualify for the Model Shadow Stock Portfolio and three of them are already held in the tracking portfolio.

Olympic Steel was previously owned in the Model Shadow Stock Portfolio but it has been more than two years since it was removed from the portfolio, so it is eligible for repurchase according to the portfolio rules.

We will provide additional information in the December Model Portfolio Update, which will be emailed on December 15. (AAII.com will also be updated to reflect these changes on December 15.) Jim Cloonan will discuss his buys and sells in his column in the January 2018 issue of the AAII Journal.