John Bajkowski
is the president of AAII.
There are no changes to the Model Shadow Stock Portfolio after conducting the quarterly portfolio review at the beginning of December.
November delivered a clear shift in market leadership, with mid- and small-cap stocks outperforming large-cap stocks after lagging behind for most of 2025. While the S&P 500 index only gained 0.2%, the S&P MidCap 400 index rose 2.0% and the S&P SmallCap 600 index gained 2.7%, signaling a broadening of market participation beyond the mega-cap stocks that have dominated for much of the year.
This improvement was visible in breadth as well, particularly among small caps, where 381 stocks advanced and 217 declined—the strongest internal momentum of the three size tiers. Vanguard 500 Index fund (VFINX) advanced 0.2% in November, while the AAII Model Shadow Stock Portfolio gained 1.8%. Among small-cap benchmarks, Vanguard Small Cap Index fund (NAESX) gained 1.4%, while DFA U.S. Micro Cap I fund (DFSCX) advanced 2.9% for the month.
November also brought a distinct rotation into value. Large-cap value rose 1.7%, sharply outperforming large-cap growth, which fell 0.9% under the weight of profit-taking in mega-cap technology companies. Mid- and small-cap growth held up better, but value still led across the style spectrum, helped by improving interest-rate expectations and stronger performance in sectors like financials, energy and consumer staples.
Sector-level performance further underscored the market’s rotation. The health care sector was a strong performer across all size tiers, rising between 7.4% and 9.3% as investors gravitated toward defensive earnings strength and more reasonable valuations after a long period of underperformance. Consumer staples, another defensive sector, also posted solid gains. The energy and materials sectors rebounded after recent weakness, supported by selective commodity strength and better demand sentiment. Meanwhile, information technology was the weakest sector, declining across all size tiers, as November marked a period of consolidation after an exceptionally strong year for companies related to artificial intelligence (AI). The communication services sector also showed a pronounced split: Large-cap stocks surged, while mid- and small-cap stocks sank, highlighting how narrowly concentrated leadership has become.
Year-to-date returns still show a wide gap between large caps and the rest of the market. The S&P 500 is up 17.8% through November, driven primarily by mega-cap technology and communication services stocks. Meanwhile, returns for the S&P MidCap 400 and S&P SmallCap 600 are more modest—up 7.4% and 6.1%, respectively. The Model Shadow Stock Portfolio is up 15.4% year to date.
Over the trailing 12 months, these gaps are even more striking: Large-cap stocks gained 15.0% as of November 30, but mid-cap stocks were slightly negative at –0.2% and small-cap stocks fell 2.4%. This reflects relatively narrow market participation and investor preference for scale, profitability and balance sheet strength. The Model Shadow Stock Portfolio is up 10.1% over the trailing 12 months.
Despite these longer-term trends, November provided an early glimpse of market broadening—value outperforming growth, smaller companies showing relative strength and defensive sectors regaining momentum. If expectations for lower interest rates continue into 2026, this rotation may represent the first stage of a more durable shift in market leadership.
November’s list of top performers was dominated by industrials and energy stocks, with the top five holdings posting double-digit gains that significantly outpaced all three benchmarks, as well as the model portfolio’s 1.8% advance.
Pangaea Logistics Solutions Ltd. (PANL) surged 41.8%, leading all gainers. The dry bulk shipping specialist benefited from strengthening freight rates and operational efficiency improvements as global trade patterns continued to evolve. Mistras Group Inc. (MG) followed with a 25.7% advance during the month, bringing its year-to-date gain to 32.3%. The asset protection and inspection services provider capitalized on strong demand across infrastructure and energy end markets, which received increased attention as capital rotated away from technology.
Energy stocks told contrasting stories. Amplify Energy Corp. (AMPY) rallied 21.1% in November despite remaining down 8.3% year to date. In contrast, NACCO Industries Inc. (NC) gained 14.1% last month, for an exceptional 61.8% year-to-date return. The coal mining and minerals company has been a standout throughout 2025 as investors sought commodity exposure.
Escalade Inc. (ESCA), a sporting goods manufacturer, rose 15.2% in November but remained down 7.1% for the year. This sharp monthly reversal from earlier weakness came after the company reported year-over-year improvements in margins driven by lower fixed costs and decreased inventory handling expenses.
The month’s five weakest holdings highlighted key risks: earnings disappointments in cyclical industrials, profit-taking in high-flying technology winners and execution challenges across sectors.
DMC Global Inc. (BOOM) was the worst performer in the portfolio with a 23.0% decline, pushing its year-to-date return into the red. In early November, the diversified industrial company reported a disappointing third-quarter 2025 net loss, with tariff-related pressures and softer demand in key markets.
Gilat Satellite Networks Ltd. (GILT) fell 19.7% despite exceptional third-quarter 2025 results. However, the company was met with aggressive profit-taking as investors locked in profits from one of the year’s biggest winners.
Regis Corp. (RGS) dropped 10.3% despite encouraging results for its fiscal first-quarter 2026, which ended September 30. The hair care salon operator delivered revenue of $59 million, up 28% year over year. However, the stock price suffered as investors questioned growth sustainability due to franchise location declines and competitive pressures in consumer discretionary.
Additional news for the model portfolio holdings is presented at the end of the article.
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 December 12, 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 increased slightly from 0.92 at the beginning of September to 0.93. 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—2.70.
Smith Douglas Homes Corp. (SDHC) has the highest price-to-book ratio in the model portfolio at 2.43. 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 increased from $362 million in September to $400 million using data in Stock Investor Pro as of December 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.
Gilat Satellite had the highest market cap in the portfolio at $814.8 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.
There were no companies on earnings probation at the start of third-quarter 2025 earnings season. However, Lakeland Industries Inc. (LAKE) reported negative quarterly results during December, placing it on earnings probation once again.
There are no changes to the Model Shadow Stock Portfolio this quarter.
As of December 12, 19 stocks met the initial selection criteria for the Model Shadow Stock Portfolio, down from 25 one month ago. 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.
Qualifying companies are those held in the Model Shadow Stock Portfolio that currently meet the initial portfolio addition rules. (They are designated as “currently qualifies” in the Notes column of the Model Shadow Stock Portfolio table on AAII.com.)
Of the 19 companies passing the initial selection criteria, six are currently held in the Model Shadow Stock Portfolio, down from 10 last month. The market caps of Oil States International Inc. (OIS) and Olympic Steel Inc. (ZEUS) moved above $400 million. Additionally, NCS Multistage Holdings Inc.’s (NCSM) price-to-book ratio rose above 0.90, and Saga Communications Inc. (SGA) reported a quarterly earnings loss, removing it from the list of currently qualifying stocks.
At the time of the review, the qualifying companies currently held in the model portfolio were Alpha Pro Tech Ltd. (APT), Fonar Corp. (FONR), NACCO Industries, Park-Ohio Holdings Corp. (PKOH), Regis, Rocky Brands Inc. (RCKY) and StealthGas Inc. (GASS).
The next quarterly review of the Model Shadow Stock Portfolio will take place following the release of fourth-quarter 2025 earnings results in March. 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!
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