John Bajkowski
is the president of AAII.
After the quarterly review of the Model Shadow Stock Portfolio at the beginning of June, five stocks are being removed and four stocks are being added.
Policy announcements and news from Washington, D.C., continue to strongly influence the market, as investors generally assume that a tariff solution will be developed while largely ignoring issues such as the U.S. national debt, high interest rates and unsettled tariff polices. The S&P 500 index has climbed over 20% since bottoming during its recent correction on April 8, 2025. While the S&P 500 remains 2% below its all-time closing high of 6,144.15 reached on February 19, 2025, it moved above its 200-day moving average on May 12, 2025, and has continued to trend upward.
The recent upsurge in the S&P 500 has been driven by the resurgence of technology stocks. The index gained 6.3% during May, with the Magnificent Seven technology stocks representing 57% of the index return. S&P senior index analyst Howard Silverblatt noted that the S&P 500 would have only gained 2.7% for the month without the contribution of these seven companies.
While most other indexes remain down for the year, broad gains were observed during May. The Model Shadow Stock Portfolio gained 6.7% during May, compared to a 5.4% gain for the S&P MidCap 400 index and a 5.2% gain for the S&P SmallCap 600 index.
In the large-cap segment, growth stocks were up 9.4% for the month, while value stocks were up 3.0%. Large-cap growth stocks are up 20.6% over the last year, compared to a return of 5.0% for large-cap value stocks. Large-cap growth stocks are up 2.4% year to date, while value stocks are down 0.4%.
Mid-cap growth stocks gained 6.2% during May, while mid-cap value stocks gained 4.5%. Mid-cap growth stocks are down 0.4% over the last year, compared to a 5.0% gain for mid-cap value stocks. Mid-cap growth stocks are down 2.8% year to date, while value stocks are down 3.7%.
Small-cap growth stocks gained 6.0% during May and are down 1.0% over the last year, while small-cap value stocks gained 4.4% during the month and are down 2.8% over the last year. Small-cap growth stocks are down 4.9% year to date, while value stocks are down 11.5%.
Large-cap growth is the only segment showing positive gains for the year through the end of May, while the small-cap value segment is still down double digits during 2025. The Model Shadow Stock Portfolio is down 13.1% over the last year and down 7.3% year to date. The Vanguard Small Cap Index fund 
(NAESX) is actually up 4.1% over the last year, but down 4.7% year to date. Dimensional Fund Advisors’ DFA U.S. Micro Cap I fund (DFSCX) is down 1.1% over the last year and down 8.3% year to date.
Market breadth improved during the month. Within the S&P 500, there were 347 advancing issues, compared to 155 declining issues—a ratio of 2.24, up from 0.50 during April. Ten of the 11 S&P 500 sectors were up during May. Information technology was the strongest sector, up 10.9% during the month, although it remains down 1.6% year to date. Health care was the weakest sector, down 5.5% during the month, down 3.1% year to date and down 6.0% over the last year.
All 11 sectors were up within the S&P MidCap 400 during May. There were 292 advancing issues, compared to 109 declining issues. The difference between the best-performing sector (industrials, up 8.2%) and worst-performing sector (utilities, up 0.2%) was 7.9%. Utilities is the best-performing S&P MidCap 400 sector over the last year, with a total return of 19.8%, while energy is the weakest, down 11.0%.
The variability of returns was larger among the S&P SmallCap 600 sectors during May. Consumer discretionary was up 12.3% during the month, while utilities was down 2.8%. The financials sector is the strongest S&P SmallCap 600 sector over the last year, up 16.4%. The energy sector was the weakest, down 32.7% over the last year.
The Model Shadow Stock Portfolio is reviewed quarterly to determine portfolio deletions and additions. The quarterly review cycle is tied to the reporting cycle of most firms and limits costly portfolio turnover. AAII’s stock analysis and screening service Stock Investor Pro, with data as of June 10, 2025, was used to determine the value and size break points for the quarterly review.
The primary Model Shadow Stock Portfolio selection criteria target the intersection of the smallest 10% of domestic stocks as measured by market capitalization, along with the “cheapest” 10% of domestic stocks as measured by the price-to-book-value (P/B) ratio.
The price-to-book cutoff has decreased slightly from 0.82 at the end of February to 0.79. The current initial qualifying maximum price-to-book ratio is 0.90 and we left it unchanged. Qualifying stocks must have a price-to-book ratio of 0.90 or lower when added to the model portfolio. Stocks in the model portfolio are removed for valuation if they exceed three times the initial maximum price-to-book ratio at the time of a quarterly portfolio review.
Ennis Inc. (EBF) has the highest price-to-book ratio in the model portfolio at 1.61. No stocks in the model portfolio exceeded the maximum price-to-book ratio at the time of review.
We examined the market-cap levels of domestic companies listed on the New York Stock Exchange (NYSE) to determine the size cutoff for the lowest decile when adding stocks to the model portfolio. The lowest decile market-cap level decreased slightly from $350 million at the end of February to $347 million using data in Stock Investor Pro as of June 10, 2025. We maintained the maximum initial qualifying market-cap value at $400 million. Holdings are removed if their market cap goes above three times the initial criterion at the time of the quarterly review.
Covenant Logistics Group Inc. (CVLG) had the highest market cap of $611.3 million, but this did not exceed the $1.2 billion market-cap maximum at the time of review.
If a company has trailing 12-month earnings from continuing operations that are negative, the stock is placed on probation; if a subsequent quarter has negative earnings prior to trailing 12-month earnings becoming positive, the stock is deleted. When available, normalized (non-GAAP) earnings are used to put stocks on probation or remove them.
Four holdings were on earnings probation at the start of the quarterly reporting season, and all four reported losses during the quarter.
Portfolio Deletion: American Vanguard Corp. (AVD)
American Vanguard is a diversified specialty and agriculture products company that develops and markets products for crop protection and management, turf and ornamentals management, and public and animal health. The company is caught in a cyclical downturn of the agricultural marketplace and experienced year-over-year declines in quarterly sales and earnings recently. American Vanguard reported a first-quarter 2025 normalized earnings loss of $0.13 per share on June 6, 2025.
American Vanguard is being removed from the portfolio due to negative earnings. American Vanguard was added to the Model Shadow Stock Portfolio on June 11, 2024, at a price of $8.79 per share. It was deleted on June 11, 2025, at $4.62 per share, for a loss of 47.4%.
Portfolio Deletion: Hooker Furnishings Corp. (HOFT)
Hooker Furnishings is a designer, marketer and importer of casegoods (wooden and metal furniture), leather furniture, fabric-upholstered furniture, lighting, accessories and home decor for the residential, hospitality and contract markets. The home furnishings industry continues to navigate a challenging environment, driven by persistent softness in the housing market, higher mortgage rates and declining consumer sentiment. High borrowing costs have dampened housing mobility, which traditionally fuels furniture demand.
On April 17, 2025, Hooker Furnishings reported a fiscal fourth-quarter 2025 adjusted earnings loss of $0.22 per share, while its trailing 12-month adjusted were still negative. Hooker Furnishings is being removed from the portfolio due to negative earnings. Hooker Furnishings was added to the Model Shadow Stock Portfolio on September 7, 2011, at a price of $8.9379 per share. It was deleted on June 11, 2025, at $11.28 per share, for a gain of 26.2%.
Portfolio Deletion: Nortech Systems Inc. (NSYS)
Nortech Systems is a provider of design and manufacturing solutions for complex electromedical devices, electromechanical systems, assemblies and components. Nortech Systems primarily serves the medical, aerospace and defense, and industrial markets. Sales were unexpectedly impacted by the timing of defense customer approvals of manufactured goods when the company closed its Blue Earth facility and moved production to its Bemidji, Minnesota, plant.
On April 17, 2025, Nortech Systems reported a first-quarter 2025 normalized earnings loss of $0.353 per share, while its trailing 12-month adjusted were still negative. Nortech Systems is being removed from the portfolio due to negative earnings. Nortech Systems was added to the Model Shadow Stock Portfolio on June 11, 2024, at a price of $10.77 per share. It was deleted on June 11, 2025, at $9.12 per share, for a loss of 15.3%.
Portfolio Deletion: Titan Machinery Inc. (TITN)
Titan Machinery owns and operates a network of full-service agricultural and construction equipment stores. Titan Machinery operates more than 93 North American dealerships, 39 European dealerships and 15 Australian dealerships. The company is also experiencing a slowdown from the current cyclical downturn of the agricultural marketplace. Titan Machinery reported a first-quarter 2025 normalized earnings loss of $0.58 per share on May 22, 2025, while its trailing 12-month adjusted earnings were still negative.
Titan Machinery is being removed from the portfolio due to negative earnings. Titan Machinery was added to the Model Shadow Stock Portfolio on September 15, 2020, at a price of $13.21 per share. It was deleted on June 11, 2025, at $20.1154 per share, for a gain of 52.3%.
Portfolio Deletion Due to Merger: Landsea Homes Corp. (LSEA)
On May 12, Landsea Homes announced that it had entered into a definitive merger agreement to be acquired by New Home Co. for $11.30 per share in an all-cash transaction. The acquisition transforms the company into a privately held enterprise, so shareholders needed to tender their shares or sell their stock ahead of the tender offer expiration. Since the market price largely reflects the acquisition price of $11.30 per share, the holding is being removed from the Model Shadow Stock Portfolio.
Landsea Homes was added to the Model Shadow Stock Portfolio on December 16, 2024, at a price of $9.6099 per share. It was deleted on June 11, 2025, at $11.295 per share, for a gain of 17.5%.
As of June 10, 20 stocks met the initial selection criteria for the Model Shadow Stock Portfolio. AAII members can see and research which companies are currently meeting 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.
Seven of the 20 qualifying stocks were already in the Model Shadow Stock Portfolio at the time of the review. The remaining 13 stocks were examined to ensure adequate liquidity, timely financial filings, and appropriate industry and foreign considerations. The Shadow Stock Portfolio Rules on AAII.com provide guidance on factors to consider when selecting stocks for your portfolio.
With the proceeds from the deletions, as well as the cash held in the portfolio, the Model Shadow Stock Portfolio was able to take a position in four companies at roughly the average position size for the existing holdings in the tracking portfolio.
(ESEA)Euroseas provides ocean-going transportation services worldwide. The company owns and operates containerships that transport dry and refrigerated containerized cargoes, including manufactured products and perishables. As of April 30, 2025, it had a fleet of 22 containerships with a cargo carrying capacity of approximately 849,404 deadweight tonnage (DWT). The company was incorporated in 2005 and is based in Marousi, Greece.
Euroseas has a book value per share of $51.50 as of December 31, 2024. If you wish to stay within the 0.90 price-to-book maximum, you should pay no more than $46.35 per share ($51.50 × 0.90). However, if the stock price has moved up after being added to the portfolio, you can still purchase the stock unless the price-to-book ratio goes above 1.00, which equates to a price of $51.50 per share.
(OIS)Oil States International is a global provider of manufactured products and services used in the drilling, completion, subsea, production and infrastructure sectors of the oil and natural gas industry, as well as in the industrial and military sectors.
Oil States International has a book value per share of $11.05 as of March 31, 2025. If you wish to stay within the 0.90 price-to-book maximum, you should pay no more than $9.95 per share. However, if the stock price has moved up after being added to the portfolio, you can still purchase the stock unless the price-to-book ratio goes above 1.00, which equates to a price of $11.05 per share.
Olympic Steel is a U.S. metals service center focused on the direct sale of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel, aluminum, tin plate, and metal-intensive branded products. The company’s subsidiary Chicago Tube & Iron (CTI) is a distributor of steel tubing, bar, pipe, valves and fittings, and fabricates pressure parts for the electric utility industry. The company is headquartered in Cleveland, Ohio, and operates out of 54 sales and warehouse locations in North America.
Olympic Steel has a book value per share of $51.44 as of March 31, 2025. If you wish to stay within the 0.90 price-to-book maximum, you should pay no more than $46.30 per share. However, if the stock price has moved up after being added to the portfolio, you can still purchase the stock unless the price-to-book ratio goes above 1.00, which equates to a price of $51.44 per share.
(SDHC)Smith Douglas Homes designs, constructs and sells single-family homes in the southeastern U.S. It also provides closing, escrow and title insurance services. The company sells its products to entry-level and empty-nest homebuyers. Smith Douglas Homes was founded in 2008 and is based in Woodstock, Georgia.
Smith Douglas Homes has a book value per share of $8.55 as of March 31, 2025. If you wish to stay within the 0.90 price-to-book maximum, you should pay no more than $7.70 per share. However, if the stock price has moved up after being added to the portfolio, you can still purchase the stock unless the price-to-book ratio goes above 1.00, which equates to a price of $8.55 per share.
The next quarterly review of the Model Shadow Stock Portfolio will take place following the release of second-quarter 2025 earnings results at the beginning of September. 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)
(06/06/2025)
American Vanguard reported a first-quarter 2025 diluted loss of $0.30 per share, down from earnings of $0.06 per share in the prior-year quarter. Earnings were 328.6% below the S&P Global consensus estimate of –$0.07 per share. Net sales were $115.8, down 14.3% year over year from $135.1 million. The company reported an operating loss of $4.3 million, down from operating income of $6.1 million in the prior-year quarter.
(05/15/2025)
Fonar reported diluted earnings of $0.11 per share for its fiscal third-quarter 2025 ended March 31, up 37.5% from $0.08 per share in the prior-year quarter. Fonar does not have earnings coverage by S&P Global. Total revenues were $27.2 million, up 5.6% year over year from $25.7 million. Operating income was $3.66 million, compared to $3.75 million in the prior-year quarter.
Gilat Satellite Networks Ltd. (GILT)
(05/19/2025)
Gilat Satellite reported first-quarter 2025 adjusted diluted earnings of $0.03 per share, down from $0.15 per share in the prior-year quarter. Earnings were 55.0% lower than the S&P Global consensus estimate of $0.067 per share. Revenues were $92.0 million, up 21.0% year over year from $76.1 million. The company reported an operating loss of $2.7 million, down from operating income of $5.4 million in the prior-year quarter.
Lakeland Industries, Inc. (LAKE)
(06/09/2025)
Lakeland Industries reported a loss of $0.18 per share for its fiscal first-quarter 2026 ended April 30, 2025, down from earnings of $0.22 per share in the prior-year quarter. Earnings were 182% lower than the S&P Global consensus estimate of $0.22 per share. Net sales were $46.7 million, up 28.7% year over year from $36.3 million. The company reported an operating loss of $4.6 million, down from operating income of $2.2 million in the prior-year quarter.
During the quarter, the company returned $285 million to shareholders through dividends.
Looking ahead to fiscal-year 2026, Lakeland Industries expects revenues of $210 million to $220 million.
(05/15/2025)
NACCO Industries declared a regular quarterly dividend of $0.25 per share, an 11% increase from the prior declaration of $0.2275 per share. The dividend is payable on June 16, to shareholders of record as of May 30. The stock will trade ex-dividend on Friday, May 30.
(05/22/2025)
Titan Machinery reported an adjusted earnings loss of $0.58 per share for its fiscal first-quarter 2026 ended April 30, 2025, down from earnings of $0.41 per share in the prior-year quarter. Earnings were 34.1% higher than the S&P Global consensus estimate of –$0.88 per share. Total revenue was $594.3 million, down 5.5% year over year from $628.7 million. The company reported an operating loss of $5.7 million, down from operating income of $22.6 million in the prior-year quarter.
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