John Bajkowski
is the president of AAII.
With 2026 off to a strong start, investors may wonder whether the adage “As goes January, so goes the year” will again hold true for the Model Shadow Stock Portfolio. Last year’s strong January ultimately aligned with solid full-year results, even though the path included periods of meaningful volatility.
Stock Trader’s Almanac founder Yale Hirsch first documented this January market observation in 1972 based on S&P 500 index data going back to 1950. Stock Trader’s Almanac refers to this indicator as the January Barometer and notes in its 2026 edition that, since 1950, the barometer has recorded only 12 major errors, producing an accuracy rate of 84%. When eight additional flat-year outcomes (less than ±5% annual change) are also counted as misses, the accuracy rate declines to 73% through 2024.
The Model Shadow Stock Portfolio gained 11.8% in January 2026 following an 18.8% advance in full-year 2025. By comparison, the S&P 500, as measured by Vanguard 500 Index fund 
(VFINX), rose 1.4% in January after returning 17.7% in 2025. Both currently signal a positive start to 2026, although the two measures do not always move in sync.
Small-cap stocks, such as those held in the Model Shadow Stock Portfolio, often follow a cycle that differs somewhat from large-cap stocks, represented by the S&P 500. For that reason, I thought it worthwhile to update the January Barometer table first presented in the April 2023 AAII Journal.
The table below shows year-by-year performance for both the Model Shadow Stock Portfolio and Vanguard 500 Index alongside our January Barometer analysis.
The table presents five columns of data for each portfolio. The first column shows January’s total return, followed by the return for the remainder of the year and the combined total return for the full year. The next column uses “X” marks to note the years in which January’s performance failed to correctly signal full-year results. Because January performance can have a meaningful impact, the final column calculates returns assuming you were always invested during January but moved to cash for the remainder of the year whenever January’s return was negative.
Overall, both the Model Shadow Stock Portfolio and Vanguard 500 Index recorded 13 January losses. However, examining individual years shows that January’s signal differed between the two investments in more than one-third of the periods, highlighting how differently the portfolio and the S&P 500 can behave over time.
The final column of the table seeks to answer whether investors could have benefited from acting on the January Barometer for the Model Shadow Stock Portfolio. Over the past 33 years, however, any gains from following the signal were outweighed by missed opportunities—either being out of the market during strong rebounds following weak Januarys or remaining invested after positive Januarys that were followed by poor full-year results.
Some of the most impactful misses for the Model Shadow Stock Portfolio occurred during the Great Recession and its aftermath. The portfolio gained 1.9% in January 2008 but went on to lose 50.8% for the year. The following year, the portfolio declined 0.6% in January yet finished 2009 with a gain of 72.3%.
Across its full history, the Model Shadow Stock Portfolio has generated a compound annual return of 13.6%. However, investing in January and moving to cash for the remainder of the year whenever January was negative would have reduced the portfolio’s annualized return to 9.9%.
Similarly, Vanguard 500 Index produced a 10.7% annualized return when fully invested. Following the January Barometer strategy would have lowered the return to 8.0%.
It is also important to distinguish the January Barometer from the January Effect, which is the observation that smaller, out-of-favor companies often experience strong performance early in the year. Additionally, these calculations do not account for the transaction challenges associated with trading the less-liquid stocks that often make up the Model Shadow Stock Portfolio universe.
The Shadow Stock approach remains best suited for investors willing to take a long-term perspective and tolerate the higher volatility that accompanies smaller-company investing, including periodic stretches of underperformance.
The Model Shadow Stock Portfolio delivered a strong start to 2026, gaining 11.8% in January and significantly outpacing major market benchmarks. Leadership came primarily from information technology, energy and industrials sector holdings that benefited from improving investor sentiment and sector-specific tailwinds. Gilat Satellite Networks Ltd. (GILT) posted the largest gain for the month, continuing a powerful rally driven by optimism around global demand for satellite and broadband connectivity solutions, along with momentum following recent contract activity and growing investor interest in communications infrastructure. Vishay Precision Group Inc. (VPG) also delivered strong gains, as investors positioned ahead of earnings and showed renewed interest in precision measurement and sensing technologies tied to industrial and aerospace demand.
Energy-related holdings were also among the top contributors. DMC Global Inc. (BOOM) and Oil States International Inc. (OIS) advanced as improving expectations for energy and infrastructure spending supported shares of oil-field services and industrial suppliers. Meanwhile, Pangaea Logistics Solutions Ltd. (PANL) benefited from continued resilience in specialized shipping markets, where tighter vessel availability and steady demand have supported freight rates and profitability expectations.
On the other end of the performance spectrum, declines were more isolated, reflecting company-specific pressures rather than broad sector weakness. Regis Corp. (RGS) recorded the largest pullback, as concerns around consumer spending trends and ongoing competitive challenges in the salon services industry weighed on shares. Friedman Industries Inc. (FRD) and Core Molding Technologies Inc. (CMT), both tied to the industrial and materials markets, experienced pullbacks following strong prior advances, reflecting normal volatility common among smaller-cap cyclical companies.
Saga Communications Inc. (SGA) also edged lower amid continued investor caution toward traditional broadcasting companies facing uneven advertising demand. NACCO Industries Inc. (NC) ended the month roughly flat as energy- and industrial-related holdings consolidated after strong gains.
Overall, the portfolio’s January results demonstrate the benefit of broad diversification, with strength across several sectors more than offsetting isolated weakness in a handful of holdings.
Twenty stocks met the initial selection criteria for the Model Shadow Stock Portfolio as of February 5, 2026, compared to 22 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.
Of the 20 qualifying companies, five are currently held in the Model Shadow Stock Portfolio: Alpha Pro Tech Ltd. (APT), Fonar Corp. (FONR), NCS Multistage Holdings Inc. (NCSM), Regis 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.)
NACCO Industries and Park-Ohio Holdings Corp. (PKOH) stopped qualifying when their price-to-book-value (P/B) ratios edged above 0.90. The Model Shadow Stock Portfolio looks for stocks with a price-to-book ratio of 0.90 or below when adding stocks to the portfolio. Shadow stocks with a price-to-book value three times the initial maximum (0.90 × 3 = 2.70) at the time of a quarterly review are removed from the portfolio, assuming there is a suitable replacement. As of February 5, Gilat Satellite had the highest price-to-book ratio in the portfolio with a value of 3.52, above the 2.70 maximum for the second consecutive month.
Gilat Satellite also had the highest market capitalization in the portfolio, with a value of $1.421 billion as of February 5. The Model Shadow Stock Portfolio looks for stocks with a market cap (share price times shares outstanding) greater than $30 million but less than $400 million when adding stocks to the portfolio. Shadow stocks with a market cap three times the initial market-cap maximum ($400 million × 3 = $1.2 billion) at the time of a quarterly review are removed from the portfolio, assuming there is a suitable replacement.
Click here to see the current addition and deletion rules for the portfolio.
The next quarterly review of the AAII Model Shadow Stock Portfolio will take place in early March, after most portfolio holdings have reported their quarterly earnings.
Many of the largest portfolio holdings have already reported their quarterly results, but these reports may not be as detailed as the annual report. Public companies must file their annual Form 10-K reports with the U.S. Securities and Exchange Commission (SEC) within a set period after their fiscal year ends, with deadlines determined by company size as measured by public float—the market value of publicly traded shares. Large accelerated filers—those with public float of $700 million or more—must file within 60 days of fiscal year-end. Accelerated filers—those with public float between $75 million and $700 million—have 75 days to file. Nonaccelerated filers, typically smaller companies with public float under $75 million, are allowed 90 days. As a result, many smaller companies report annual figures later in earnings season, with filings often arriving toward the end of the first quarter.
If there are any changes to the model portfolio, they will be announced in the Model Shadow Stock Portfolio Update email. Sign up for this email so you don’t miss it!
Covenant Logistics Group, Inc. (CVLG)
(01/29/2026)
Covenant Logistics Group reported fourth-quarter 2025 adjusted earnings of $0.31 per share, down 8.8% from $0.34 per share in the prior-year quarter. Earnings were 6.9% lower than the S&P Global consensus estimate of $0.333 per share. Total revenue was $295.4 million, up 6.5% year over year from $277.3 million. The combined truckload and expedited revenue segments experienced losses, while dedicated truckload revenues experienced growth. The company reported an operating loss of $24.2 million, down from operating income of $8.6 million in the prior-year quarter.
Looking ahead, the company stated that its immediate priority in 2026 is to use proceeds from the sale of excess equipment to pay down debt.
(01/23/2026)
Euroseas outlined plans to expand its fleet while benefiting from strong charter market conditions. The company noted that it currently operates 21 vessels, with additional ships under construction and new intermediate container vessels scheduled for delivery in 2027 and 2028. The company has secured high charter rates for much of the 2026 to 2028 period, supporting solid revenue visibility and profitability. Management emphasized its strong financial position with manageable debt, ongoing dividend payments and share buybacks, while pointing out that the company’s estimated asset value exceeds its current market valuation. Euroseas also highlighted investments in more-fuel-efficient and lower-emission vessels and expects the market to remain profitable even as conditions gradually normalize.
Gilat Satellite Networks Ltd. (GILT)
(01/20/2026)
Gilat Satellite announced that its commercial division secured an approximately $11 million order from a leading satellite operator in the Asia-Pacific region for its SkyEdge platform. The order is set to be delivered over the next 12 months and deployed to support services over throughput satellites across multiple applications.
Smith Douglas Homes Corp. (SDHC)
(01/17/2026)
BofA Securities reiterated its underperform rating of Smith Douglas Homes but lowered its 12-month price target from $15 to $14 per share, reflecting the firm’s cautious outlook on the company’s near-term performance amid broader market and industry pressures. The downgrade signals weaker expected returns relative to the market and adds to recent analyst skepticism about the company’s valuation and growth prospects. Smith Douglas Homes closed at $20.41 per share on Thursday January 22, 2026.
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