John Bajkowski
is the president of AAII.
FLXS
After conducting the quarterly review of the Model Shadow Stock Portfolio, Flexsteel Industries Inc. (FLXS) was removed from the tracking portfolio and Penn Virginia Corp. (PVAC) was added to the tracking portfolio during regular trading hours on Monday, June 15.
Flexsteel Industries, Inc. 
(FLXS)
Flexsteel Industries was removed because of the Model Shadow Stock Portfolio’s negative earnings rule. On April 28, 2020, the company reported an adjusted fiscal third-quarter loss of $0.66 per share, while trailing 12-month earnings remained negative.
Flexsteel is a manufacturer, importer, marketer and distributor of residential and commercial furniture products in the U.S. Product offerings include a wide variety of upholstered furniture such as sofas, loveseats, chairs, reclining and rocker-reclining chairs, swivel rockers, sofa beds, convertible bedding units, occasional tables, desks, dining tables and chairs and bedroom furniture. A featured component in most of the upholstered furniture is a unique steel drop-in seat spring from which the name “Flexsteel” is derived.
The company has serviced the hospitality, health care, senior living, government and commercial office markets, but previously announced a comprehensive restructuring plan and decided to exit its recreational vehicle, commercial office and hospitality businesses. Flexsteel will focus on three business platforms going forward: home furnishings, e-commerce and workspace solutions.
The firm’s profitability has suffered from restructuring costs as well as the impact of tariffs imposed on imports. Recently e-commerce sales have increased, but not enough to overcome the coronavirus’ impact on sales in its remaining channels.
It is the policy of the Model Shadow Stock Portfolio to sell a stock once its trailing 12-month adjusted earnings go negative and the company reports a quarterly loss in a subsequent quarter while trailing earnings are still negative.
Penn Virginia Corp. (PVAC)
Penn Virginia is an independent oil and gas company. The company is engaged in the onshore exploration, development and production of crude oil, natural gas liquids (NGLs) and natural gas. The company’s operations consist primarily of drilling unconventional horizontal development wells and operating its producing wells in the Eagle Ford Shale field in South Texas. The company’s primary oil and gas assets are located in Gonzales and Lavaca Counties in South Texas.
Based on Penn Virginia’s closing price of $12.61 on June 12, we suggest paying no more than $40.64. To calculate the maximum buy price based on the maximum desired price-to-book-value ratio, multiply the current book value per share ($45.16 for Penn Virginia) by the maximum price-to-book ratio to be considered for the Model Shadow Stock Portfolio (currently 0.9). The calculation is: $45.16 × 0.9 = $40.64.
The full June Model Shadow Stock Portfolio Update will be sent out on Tuesday, June 16, 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 following the end of August 2020. 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).
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