John Bajkowski
is the president of AAII.
While the S&P 500 index continued its upward track during June, mid- and small-cap stock indexes posted losses during the month. The Model Shadow Stock Portfolio was down 3.0% during June, compared to a 3.6% gain for the S&P 500, a 1.6% loss for the S&P MidCap 400 index and a 2.3% loss for the S&P SmallCap 600 index. Market breadth turned negative during the month. The number of declining issues outnumbered the number of advancing issues across all S&P indexes. Within the S&P 500, declining issues outpaced advancing issues 301 to 198 for a ratio of 0.66, down from 1.85 last month. The ratio was 0.55 in the S&P MidCap 400 (down from 2.67 last month) and 0.55 for the S&P SmallCap 600 (down from 2.20 last month). Within the Model Shadow Stock Portfolio, the breadth was also weak: 10 holdings were up for the month, while 20 were down, for a ratio of 0.50.
In the large-cap segment, value stocks were down 0.7% for the month, while growth stocks were up 7.0%. Over the last year, large-cap value stocks are up 15.3%, compared to a return of 32.5% for large-cap growth stocks.
During June, mid-cap value stocks lost 1.9% and mid-cap growth stocks were down 1.3%. Mid-cap value stocks are up 8.2% over the last year, while mid-cap growth stocks are up 18.8%.
Small-cap value stocks lost 2.7% during June and small-cap growth stocks lost 1.9%. Small-cap value stocks are up 4.2% over the last year, while small-cap growth stocks are up 13.0%.
The Model Shadow Stock Portfolio lost 3.0% for the month and is up 4.8% over the last year. The Vanguard Small Cap Index fund 
(NAESX) lost 1.3% during June and is up 11.4% over the last year.
The S&P 500 is up 15.3% for the year to date as of June 28, with the 10 top-performing stocks accounting for 71.2% of the index total return through June 28, 2024. The Model Shadow Stock Portfolio is now down 1.4% for the year to date compared to a 6.2% gain for the S&P MidCap 400 and a 0.7% loss for the S&P SmallCap 600.
Since its inception in 1993, the AAII Model Shadow Stock Portfolio has a compound annual average return of 13.5%, versus the Vanguard 500 Index fund’s (VFINX) gain of 10.4% per year on average over the same period. Over the same period, the Vanguard Small Cap Index fund posted an average annual gain of 9.7%.
The number of declining sectors outnumbered advancing sectors, with the weakness increasing as the market capitalization became smaller. Five sectors in the S&P 500 were up for the month. Information technology was the best performer, up 9.3%, while the weakest sector was utilities, down 5.8% for the month. In the mid-cap segment, three sectors were up during the month—real estate (+1.9%), health care (+1.7%) and information technology (+1.3%). The materials sector was the weakest in the mid-cap segment, down 7.3% during June. Only one sector was positive within the S&P SmallCap 600—financials, up 0.1%. The materials sector was also the weakest sector in the small-cap segment, down 6.7% during the month.
Looking at the last year, communication services (+43.6%) and information technology (+40.7%) are the top performers in the S&P 500; information technology (+25.2%) and consumer staples (+19.5%) had the best performance in the S&P MidCap 400; and financials (+17.2%) and industrials (+15.4%) had the best performance in the S&P SmallCap 600. The weakest-performing sectors among large-company stocks were defensive: real estate (+1.9%) and utilities (+4.1%). Communication services (–13.3%) and real estate (–2.2%) were the weakest sectors in the S&P MidCap 400, while utilities (–11.1%) and communication services (–5.0%) were the weakest S&P SmallCap 600 sectors over the last year.
Sixteen stocks met the initial selection criteria for the Model Shadow Stock Portfolio as of July 12, up from 15 passing stocks last month. AAII members can see and research which companies are currently passing the initial selection criteria in the Shadow Stock Ideas table on AAII.com. The list of new Shadow Stock Ideas is updated daily—Tuesday through Saturday.
Of the 16 qualifying companies, seven are currently held in the Model Shadow Stock Portfolio: American Vanguard Corp. (AVD), Castor Maritime Inc. (CTRM), DMC Global Inc. (BOOM), Fonar Corp. (FONR), Friedman Industries Inc. (FRD), SigmaTron International Inc. (SGMA) and StealthGas Inc. (GASS).
Qualifying companies are those held in the Model Shadow Stock Portfolio that currently meet the initial addition rules. They are designated as “currently qualifies” in the notes column of the Model Shadow Stock Portfolio table on AAII.com. However, if you go online, the notes may not match the list discussed here since the notes on the website table are dynamically updated daily.
Alpha Pro Tech Ltd. (APT) and Nortech Systems Inc. (NSYS) stopped passing the qualifying list when their price-to-book-value (P/B) ratios moved above 0.90 over the last month. Friedman Industries started to pass the initial screen again when its price-to-book ratio dropped below 0.90, while StealthGas qualifies again because its market cap is below $300 million.
The Model Shadow Stock Portfolio looks for stocks with a market cap (share price times shares outstanding) less than $300 million. Shadow stocks with a market cap three times the initial market cap maximum—$900 million ($300 million × 3)—at the time of a quarterly review are removed from the model portfolio, assuming there is a suitable replacement. As of July 12, 2024, Ducommun Inc. (DCO) had the highest market cap of $876.2 million.
As of July 12, 2024, Ennis Inc. (EBF) had the highest price-to-book ratio in the Model Shadow Stock Portfolio. Its ratio of 1.67 is above the 0.90 maximum value used for initially qualifying a stock for inclusion in the portfolio. However, stocks are not removed from the portfolio until their price-to-book ratio rises to three times the initial maximum value, 2.70 (0.90 × 3). Covenant Logistics Group Inc. (CVLG) also had an elevated price-to-book ratio of 1.60.
See the current addition and deletion rules for the portfolio.
The next quarterly review of the AAII Model Shadow Stock Portfolio will take place around the beginning of September 2024, after most of the holdings have announced their quarterly earnings.
If there are any changes to the model portfolio, they will be announced at the time with a special Model Shadow Stock Portfolio Update email. Sign up for this email so you don’t miss it!
American Vanguard Corporation (AVD)
(07/08/2024)
American Vanguard chairman and CEO Eric G. Wintemute informed the board of his upcoming retirement. After being with the company for 47 years, in the CEO position for 30 years, Wintemute will step down no later than December 31, 2024. Post-retirement, he will continue to serve as chairman and provide consulting services on a part-time basis.
(06/25/2024)
DMC Global’s board of directors elected Simon Bates as an independent director. Bates joins the board with nearly 30 years of leadership experience in the building products industry. He was previously CEO of Argos North America from October 2022 to January 2024.
(06/20/2024)
Ducommun announced the receipt of an order totaling over $12 million in revenue for Raytheon’s TOW missile system. This award represents the first order for this legacy program that will now be produced at Ducommun’s engineering and manufacturing performance center in Guaymas, Mexico. Previously, this production occurred at Ducommun’s Monrovia, California, facility.
Ducommun currently provides Raytheon with electronics, controllers, circuit card assemblies, harness cable assemblies and structural products on both legacy and emerging programs.
(06/25/2024)
Ennis acquired Printing Technologies Inc. (PTI) located in Indianapolis, Indiana. Founded in 1994, Printing Technologies is a manufacturer of innovative media solutions used in all types of printing technologies including direct thermal, thermal transfer, ink jet, dot matrix and laser. Financial terms of the deal were not immediately released.
(06/17/2024)
Ennis reported first-quarter 2024 revenues of $103.1 million, down 7.4% year over year. Earnings per diluted share were $0.41 compared to $0.45 per share for the comparative quarter last year. Ennis is tracked by one analyst and the reported earnings per share figure of $0.41 surpassed the estimate of $0.36 per share by 13.9%. Gross profit margin was 30.0% compared to 30.6% for the prior-year quarter. The company repurchased 91,883 shares of common stock during the quarter at an average price of $19.79 per share.
Lakeland Industries, Inc. (LAKE)
(07/01/2024)
Lakeland Industries acquired the fire and rescue business of LHD Group Deutschland GmbH and its subsidiaries in Hong Kong and Australia. The all-cash deal is valued at $16.3 million. LHD Group is a leading provider of firefighter gear, accessories and protective equipment services. The firm has an annual revenue of roughly $27 million with 111 employees worldwide.
President and CEO Jim Jenkins stated, “The completion of this acquisition accelerates our long-term growth strategy by significantly expanding our market share and global presence in the fire service industry. LHD’s premium products and services align remarkably well with our existing portfolio and provides us with new opportunities to enhance our service offerings and revenue streams. We are excited about the market expansion and cross-selling opportunities this acquisition brings and are confident that it will be immediately accretive to Lakeland.”
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