Model Shadow Stock Portfolio Changes

After conducting the quarterly review of the Model Shadow Stock Portfolio, two stocks were removed from the tracking portfolio during regular trading hours on Tuesday, June 4.

With the proceeds from these two sales, as well as the cash held in the portfolio, we were able to add one new stock to the Model Shadow Stock Portfolio. It is the policy of the Model Shadow Stock Portfolio to not underweight or overweight new positions. Instead, it is better to hold excess cash until there is enough to buy a new stock with a position size roughly equivalent to the average position size in the portfolio.

Sell Alerts

Amira Nature Foods Ltd. (ANFI)

Amira Nature Foods has been on earnings probation since it announced its second-quarter 2018 earnings. At that time, the company’s trailing 12-month earnings per share turned negative. In August of last year, the company announced it would be late in filing its Form 20-F for the year ended March 31, 2018. The company filed its Form 20-F in mid-March, at which time it was shown that its six-month results for the period ending September 30, 2018, were negative. If a Shadow Stock that is on earnings probation reports a subsequent quarterly loss (or in this case a subsequent six-month loss), it is removed from the portfolio.

CSS Industries Inc. (CSS)

CSS Industries has been on earnings probation since it announced its second-quarter 2019 earnings on November 1, 2018. At that time, the company’s trailing 12-month earnings per share turned negative. On May 30, the company reported a quarterly loss. If a Shadow Stock that is on earnings probation reports a subsequent quarterly loss, it is removed from the portfolio.

Buy Alert

With the proceeds from the Amira Nature Foods and CSS Industries sales 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 portfolio addition is:

• Mesa Air Group (MESA); June 3, 2019, closing price of $9.00 per share

Based on Mesa Air Group’s closing price of $9.00 on June 3, we suggest paying no more than $11.84. 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 Mesa Air Group as of June 3 was 0.76, so the calculation is: [$9.00 × (1.0 ÷ 0.76)] = $9.00 × 1.316 = $11.84.

Next Monthly Update & Quarterly Review

The next monthly Model Shadow Stock Portfolio Update will take place on Friday, June 14. On that day, the monthly Model Shadow Stock Portfolio Update email will go out and the AAII Shadow Stocks area of AAII.com will be updated with new performance data.

The next quarterly review of the Model Shadow Stock Portfolio will take place at the end of August 2019. Any changes to the portfolio will be announced at the time they are made in a special Model Shadow Stock Portfolio Update email (sign up at www.aaii.com/email).