John Bajkowski
is the president of AAII.
After the quarterly review of the Model Shadow Stock Portfolio at the beginning of March, one stock is being removed and one stock is being added.
February 2026 market performance reflected a modest shift in leadership as investor attention began to broaden beyond the mega-cap technology companies that have driven much of the market’s gains in recent years. Concerns about the potential disruptive impact of new artificial intelligence (AI) models—particularly in coding and other knowledge-based industries—contributed to selling pressure across parts of the software and technology ecosystem. At the same time, investors began to question the heavy concentration of market leadership among a small group of large technology companies, leading to profit-taking and increased volatility in some of the market’s strongest performers. Rising geopolitical tensions and signs of stress in segments of the private credit market further reinforced a somewhat cautious tone among investors.
Historically, periods of highly concentrated market leadership and significantly expanded large-cap valuations have often been followed by broader participation across the market. When this occurs, smaller and more attractively valued companies frequently begin to receive increased investor attention. While these rotations rarely unfold smoothly or predictably, early signs of a shift toward smaller companies can create a more favorable backdrop for value-oriented small-cap strategies such as the Model Shadow Stock Portfolio.
The recent escalation of the Iran war is a reminder that geopolitical events can quickly introduce uncertainty into financial markets. While such developments may increase short-term volatility, they rarely alter the long-term fundamentals that drive investment returns. For investors following a disciplined strategy, the most effective response is usually to remain patient and maintain the portfolio’s intended allocation rather than reacting to short-term market turbulence.
The Model Shadow Stock Portfolio gained 3.2% in February, compared to a 0.8% decline for the S&P 500 index. The S&P MidCap 400 index gained 4.1%, while the S&P SmallCap 600 index rose 2.2%. Market breadth remained relatively healthy across the size spectrum, as advancing issues outnumbered declining issues within each index group.
A noticeable style shift also occurred during the month. Large-cap growth stocks declined 3.4%, while large-cap value stocks gained 2.3%. Among mid-cap stocks, growth performed particularly well, rising 5.8%. This pattern suggests that investors may be beginning to reallocate capital toward companies outside the largest technology leaders, particularly those with improving fundamentals and more moderate valuations.
Sector performance further highlighted the shift in market leadership. The energy, materials and industrials sectors were among the strongest performers in February, posting solid gains across the market capitalizations. The energy sector rose 9.4% among large caps and 12.8% among mid-caps, reflecting continued strength in commodity-linked industries. The utilities and consumer staples sectors also delivered strong returns, pointing to increased investor demand for more defensive sectors.
Several sectors tied to last year’s technology-driven rally lagged last month. The consumer discretionary sector recorded the largest decline among large-cap stocks, falling 5.4%, while the information technology and communication services sectors also declined among large companies. However, information technology stocks held up better among mid- and small-cap companies, suggesting that investors were rotating away from the largest technology leaders rather than abandoning the sector entirely. Financials stocks also declined across all market capitalizations in February amid uncertainty surrounding interest rates and emerging signs of stress in segments of the private credit market.
Overall, February’s market activity reflected sector rotation rather than broad market weakness. Leadership shifted toward cyclical and defensive sectors, while smaller companies and value-oriented stocks began to gain traction as investors reassessed valuations following the heavy concentration of gains among mega-cap technology companies in 2025. Historically, periods when market leadership broadens beyond the largest companies have often created more favorable conditions for disciplined small-cap value strategies such as the Model Shadow Stock Portfolio.
Several holdings delivered strong gains in February, led by Oil States International Inc. 
(OIS), which surged 54.5% during the month and is now up 140.6% over the last year. The energy services company benefited from continued strength in global oil and gas development activity, particularly offshore projects, which support demand for its completion services and production equipment. Improved profitability expectations and strong operating leverage have helped drive investor interest in the stock.
Rocky Brands Inc. (RCKY) gained 40.4% in February and is up 122.2% over the past year. The footwear manufacturer benefited from improved operating efficiency, stronger margins and steady demand for its work and outdoor footwear brands. Investors appear increasingly optimistic about the company’s earnings momentum and balance sheet improvements.
Industrials sector stock Euroseas Ltd. (ESEA) rose 20.2% during the month and is up 138.6% over the past year. The container shipping company continues to benefit from strong charter rates and disciplined fleet management, which have supported solid cash flow generation. Shipping stocks have remained volatile, but improving global trade conditions and tight vessel supply have supported profitability across the sector.
Covenant Logistics Group Inc. (CVLG) advanced 19.7% in February. The trucking and logistics company is benefiting from improving freight demand and operational efficiencies within its dedicated and managed freight segments, which have helped support margins despite a challenging freight market over the past year.
Rounding out February’s top performers was NACCO Industries Inc. (NC), which gained 16.6% during the month and is now up 77.8% over the last year. Investor sentiment for the mining and natural resources company has improved alongside stronger commodity demand and expectations for improved results from its coal mining and natural resources operations.
On the downside, DMC Global Inc. (BOOM) declined 31.5% in February and is down 30.5% over the past year. The industrials company, which provides explosion-welded metal products and oilfield perforating systems, has faced pressure due to weakness in energy-related capital spending and uncertainty surrounding demand in some of its industrial end markets.
Gilat Satellite Networks Ltd. (GILT) fell 17.6% during February, despite remaining up 123.6% over the past year. The satellite communications equipment provider has been volatile following its strong rally over the past year. Its February decline likely reflects profit-taking after a substantial advance.
Kimball Electronics Inc. (KE) declined 17.3% during the month. The contract manufacturer, which serves the automotive, industrial and medical markets, has faced investor concerns about slowing demand in certain electronics segments and broader uncertainty surrounding global manufacturing activity.
Homebuilder Smith Douglas Homes Corp. (SDHC) fell 13.0% in February and is down 25.8% over the past year. The housing sector has remained sensitive to interest rate expectations and affordability concerns, which continue to influence investor sentiment toward homebuilding companies.
Finally, Vishay Precision Group Inc. (VPG) declined 8.0% during the month despite remaining up 95.7% over the past year. The company, which manufactures precision sensors and measurement systems used in industrial and aerospace applications, has experienced some volatility following a strong multi-month advance.
The wide range of returns among February’s top and bottom performers highlights the inherent volatility that often accompanies investing in smaller companies. Individual stocks can move sharply in response to earnings results, shifts in investor sentiment or changes in industry conditions. While these short-term swings can be uncomfortable, they are also a normal part of small-cap investing. Maintaining a disciplined, diversified approach and focusing on long-term fundamentals remains central to the Model Shadow Stock Portfolio strategy. Over time, this approach seeks to capture the valuation opportunities that frequently exist among smaller, less widely followed companies.
The Model Shadow Stock Portfolio is reviewed quarterly to determine portfolio deletions and additions. This review cycle is tied to the reporting schedule of most companies and helps limit costly portfolio turnover. AAII’s stock analysis and screening service, Stock Investor Pro, with data as of February 27, 2026, was used to determine the value and size breakpoints for the current review.
The primary selection criteria target the intersection of the smallest 10% of domestic stocks, as measured by market cap, and the cheapest 10% of domestic stocks, as measured by the price-to-book-value (P/B) ratio.
The price-to-book 10% cutoff increased again this quarter, rising from 0.93 in December to 0.96. The model’s qualifying maximum price-to-book ratio had remained 0.90 since March 2022, but the threshold was raised to 1.00 this quarter to reflect the general rise in overall market valuations. Stocks added to the portfolio must have a price-to-book ratio of 1.00 or less at the time of addition.
The portfolio also applies a valuation discipline for existing holdings. During each quarterly review, a stock is removed if its price-to-book ratio exceeds three times the qualifying maximum price-to-book ratio that is in effect at the time of the review.
Gilat Satellite had the highest price-to-book ratio in the portfolio at 2.92, just below the removal threshold. No stocks in the portfolio exceeded the maximum price-to-book ratio at the time of the 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 remained unchanged at $400 million, and we maintained the maximum initial qualifying market-cap value at $400 million.
As part of the portfolio’s size discipline, holdings are removed if their market cap rises above three times the initial qualifying threshold ($1.2 billion) at the time of review.
Ryerson Holding Corp. (RYZ) had the highest market cap in the portfolio at $1.29 billion, exceeding the maximum threshold. Ryerson Holding entered the portfolio following its February merger with Olympic Steel Inc. Ryerson Holding is being removed from the portfolio due to its market cap. The company had an adjusted cost basis from its Olympic Steel merger of $18.1907 per share. It was deleted on March 10, 2026, at $23.638 per share, for a price gain of 29.9%.
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, adjusted (non-GAAP) earnings are used to put stocks on probation or remove them.
Small-cap companies have additional time to file their fiscal year-end financial statements. While larger companies must file their annual reports with the U.S. Securities and Exchange Commission (SEC) within 60 days of year-end, small firms have 90 days to file. The deadlines are shorter for filing quarterly statements: Large companies must file their quarterly reports within 40 days of the quarter-end, while smaller firms must file within 45 days. As a result, not all of the Model Shadow Stock Portfolio holdings released their year-end statements at the time of the review.
DMC Global went on earnings probation this reporting season after posting a loss for a second consecutive quarter. Lakeland Industries Inc. (LAKE) remains on earnings probation after reporting negative earnings for its quarter ending October 31, 2025.
As of March 6, 24 stocks met the initial selection criteria for the Model Shadow Stock Portfolio. 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.
Five qualifying stocks were already in the Model Shadow Stock Portfolio at the time of the review. The remaining 19 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 deletion, as well as the cash held in the portfolio, the Model Shadow Stock Portfolio was able to take a position in one company, although it was below the average position size for the existing holdings in the tracking portfolio.
Eastern Co. (EML) designs, manufactures and sells engineered solutions for industrial markets across North America. The company provides turnkey returnable packaging solutions used in the assembly of vehicles, aircraft and other durable goods, as well as in the production of plastic packaging products, packaged consumer goods and pharmaceuticals. It also develops and manufactures injection blow mold tooling and two-step stretch blow molds and related components used in the stretch blow molding industry. It supplies blow molds and change parts to customers in the food, beverage, health care and chemical industries.
Eastern Co. also produces a range of industrial hardware products, including rotary, compression and draw latches, as well as hinges, camlocks, key switches, padlocks and handles. In addition, the company provides development and program management services for custom electromechanical and mechanical systems for original equipment manufacturers (OEMs) and other customer applications.
The company also designs and manufactures proprietary vision technology for OEM and aftermarket applications and supplies aftermarket components to the heavy- and medium-duty truck, motorhome and bus markets. Eastern Co. was founded in 1858 and is headquartered in Shelton, Connecticut.
As of January 3, 2026, Eastern Co. had a book value of $20.63 per share. To remain within the model portfolio’s initial 1.00 price-to-book maximum, investors should pay no more than $20.63 per share ($20.63 × 1.00). However, if the stock price has risen since being added to the portfolio, shares may still be purchased until the price-to-book ratio reaches 1.10, which corresponds to a price of approximately $22.69 per share.
The next quarterly review of the Model Shadow Stock Portfolio will take place following the release of first-quarter 2026 results at the beginning of June. If there are any changes to the model portfolio, they will be announced at the time in the monthly Model Shadow Stock Portfolio Update email. Sign up for this email so you don’t miss it!
(03/09/2026)
Amplify Energy reported a diluted loss of $0.242 per share for fourth-quarter 2025, down 286.2% from earnings of $0.13 per share in the prior-year quarter. The loss was 215.0% below the S&P Global consensus estimate for earnings of $0.21 per share. Revenue was $56.6 million, down from $69.0 million in the prior-year quarter. Net income was $64.4 million, down from $970.3 million in the prior-year quarter but up compared to a net loss in the prior-year quarter. These gains can be attributed to East Texas and Oklahoma assets. Free cash flow was $2 million. Key performance factors included the strategic divestiture of noncore assets to simplify the company’s portfolio and a reinforcement of high-margin production.
During full-year 2025, Amplify Energy successfully repaid all outstanding debt under its credit facility, ending the year with $61 million in cash.
(02/23/2026)
DMC Global reported a fourth-quarter 2025 adjusted loss of $0.50 per share, 300.0% below the S&P Global consensus estimate of a loss of $0.125 per share. This earnings downturn was largely attributed to more than $10 million in annual tariff expenses that heavily squeezed margins. Revenues were $143.5 million, down 5.8% year over year. The company reported an adjusted EBITDA loss of $1.6 million, down from a gain of $10.4 million in the prior-year quarter. Net debt was $18.7 million, down 67% year over year from $56.4 million.
While the company narrowed its full-year 2025 net loss, its bottom line remained pressured by high aluminum costs.
(02/25/2026)
Euroseas reported fourth-quarter 2025 adjusted diluted earnings of $4.48 per share, 0.2% above the S&P Global consensus estimate of $4.47 per share. Total net revenues were $57.4 million, up 7.7% year over year from $53.3 million. Net income was $40.5 million, up significantly from $24.4 million in the prior-year quarter. Adjusted EBITDA was $40.7 million, up from $32.8 million in the prior-year quarter.
As of its earnings release, Euroseas’ share repurchases under its current program totaled $11.36 million, representing 6.8% of outstanding shares. Additionally, the company declared a regular quarterly dividend of $0.75 per share, a 7% increase from the prior declaration. The dividend is payable on March 17, to shareholders of record as of March 10. The stock will trade ex-dividend on Tuesday, March 10.
(02/11/2026)
Euroseas secured a 22- to 24-month time charter extension for its 1,740 20-foot equivalent unit feeder containership EM Spetses at a gross daily rate of $21,500, which is $3,000 more than the vessel’s existing rate. The charter, beginning April 12, was contracted with a first-class, international liner company and reflects continued strength and limited vessel availability in the feeder segment of the containership market. The extension enhances the company’s revenue visibility and increases charter coverage into 2026, 2027 and part of 2028, supporting stable cash flow generation and demonstrating sustained demand despite normal seasonal fluctuations in the sector.
(02/13/2026)
Fonar reported diluted earnings of $0.31 per share for its fiscal second-quarter 2026 ended December 31, 2025, up 6.9% from $0.29 per share in the prior-year quarter. Fonar does not have earnings coverage by S&P Global. Total revenues were $25.5 million, up 2.4% year over year from $25.0 million. Product sales, service and repair fees, and management and other fees grew year over year, but patient fees decreased from $7.9 million to $7.3 million. Income from operations was $3.0 million, up 23.2% year over year from $2.4 million.
Friedman Industries, Incorporated (FRD)
(02/09/2026)
Friedman Industries reported diluted earnings of $0.43 per share for its fiscal third-quarter 2026 ended December 31, 2025, up from a loss of $0.17 per share in the prior-year quarter. Friedman Industries does not have earnings coverage by S&P Global. Net sales were $168.0 million, up 78.6% year over year from $94.1 million, driven by improved capacity utilization, commercial execution and contribution from the acquisition of Century Metals and Supplies Inc. Earnings from operations were $3.9 million, up from a loss of $1.2 million in the prior-year quarter.
Looking ahead, management expects sales volumes for its fiscal fourth-quarter 2026 ending in March to remain generally consistent with fiscal third-quarter 2026 levels and anticipates sequential improvement in sales margins driven by increases in average selling prices.
Gilat Satellite Networks Ltd. (GILT)
(02/24/2026)
Gilat Satellite received $39 million in orders from a leading satellite operator for its Sidewinder electronically steerable antenna (ESA) in-flight connectivity terminals. These orders cover both linefit and retrofit aircraft installations, with deliveries scheduled over the next 12 months. This contract win highlights the accelerating global demand for Gilat Satellite’s multi-orbit technology, which provides seamless broadband across low Earth orbit (LEO), medium Earth orbit (MEO) and geostationary Earth orbit (GEO) constellations. The news followed a strong fourth-quarter 2025 earnings report, where the company reported full-year 2025 revenue growth of 48% to $451.7 million and set a record for adjusted EBITDA at $53.2 million.
(02/17/2026)
Gilat Satellite’s defense division, Gilat Defense, was awarded a $9 million contract by Israel’s Ministry of Defense to deliver and integrate advanced satellite communication systems and next-generation defense modems designed for secure, mission-critical operations in challenging environments. These systems are intended to enhance reliable, flexible connectivity for military use and underscore the continued importance of advanced satellite communications (satcom) technology for modern defense forces.
(02/10/2026)
Gilat Satellite reported fourth-quarter 2025 adjusted earnings of $0.20 per share, up 33.3% from $0.15 per share in the prior-year quarter. Earnings were 46.3% above the S&P Global consensus estimate of $0.137 per share. Revenues were $137.0 million, up 75.3% year over year from $78.1 million, with growth in the commercial, defense and Peru revenue segments. Operating income was $13.0 million, up 1.5% year over year from $12.8 million.
Looking ahead, the company estimates full-year 2026 revenues between $500 million and $520 million.
Lakeland Industries, Inc. (LAKE)
(02/17/2026)
Lakeland Industries appointed Calven Swinea as its new CFO, effective immediately. Swinea has served as the company’s interim CFO since January 2026 and previously served as its vice president of finance. Lakeland Industries said that Swinea will focus on strengthening liquidity, accelerating debt reduction, improving working capital efficiency and cost discipline, and overseeing the rollout of its enterprise resource planning system to centralize data and enhance financial controls, while executing strategic initiatives to expand market share and drive profitable growth.
(03/04/2026)
Mistras Group reported fourth-quarter 2025 adjusted earnings of $0.25 per share, up 4.2% from $0.235 per share in the prior-year quarter. Earnings were 6.4% above the S&P Global consensus estimate of $0.235 per share. Revenue was $181.5 million, up 5.1% year over year from $172.7 million, with revenue growth in the North America, international, and products and systems segments. Income from operations was $10.4 million, down 1.8% year over year from $10.5 million.
(03/04/2026)
NACCO Industries reported a fourth-quarter 2025 diluted earnings loss of $0.52 per share, down from earnings of $1.02 per share in the prior-year quarter. NACCO Industries does not have earnings coverage by S&P Global. Revenues were $66.8 million, down 5.2% year over year from $70.4 million. Total tons of coal delivered were 6,219, up from 6,133 in the prior-year quarter. Operating profit was $7.6 million, up from $3.9 million in the prior-year quarter.
NCS Multistage Holdings, Inc. (NCSM)
(03/04/2026)
NCS Multistage reported fourth-quarter 2025 diluted earnings of $5.34 per share, up from $1.32 per share in the prior-year quarter. NCS Multistage does not have earnings coverage by S&P Global. Total revenues were $50.6 million, up 12.5% year over year from $45.0 million, with revenue growth in product sales and services. Income from operations was $5.2 million, up 77.7% year over year from $2.9 million. Looking ahead, CEO Ryan Hummer stated that the company expects a challenging market environment in full-year 2026 with lower customer activity.
Oil States International, Inc. (OIS)
(02/20/2026)
Oil States International reported fourth-quarter 2025 adjusted diluted earnings of $0.13 per share, up 44.4% from $0.09 per share in the prior-year quarter. Earnings were 30.0% above the S&P Global consensus estimate of $0.10 per share. Revenues were $178.5 million, up 8.4% year over year from $164.6 million, with products revenue up 23.4% and services revenue down 14.1%. The company reported an operating income loss of $113.6 million, down from income of $4.7 million in the prior-year quarter. Offshore and international revenue grew 10.7%, while U.S. land revenue remained relatively unchanged.
During full-year 2025, the company repurchased a total of $16.6 million worth of shares, or 5% of the shares that were outstanding as of December 31, 2024.
Park-Ohio Holdings Corp. (PKOH)
(03/04/2026)
Park-Ohio Holdings reported fourth-quarter 2025 adjusted earnings of $0.65 per share, down 3.0% from $0.67 per share in the prior-year quarter. Earnings were 11.6% below the S&P Global consensus estimate of $0.735 per share. Net sales were $395.0 million, up 1.7% year over year from $388.4 million. Operating income was $10.0 million, down from $14.4 million in the prior-year quarter. Looking ahead to full-year 2026, the company forecasts net sales growth of 5% to 7% and adjusted earnings of $2.90 to $3.20 per share.
(02/24/2026)
Rocky Brands reported fourth-quarter 2025 adjusted diluted earnings of $0.94 per share, down 21.0% from $1.19 per share in the prior-year quarter. Earnings were 93.8% above the S&P Global consensus estimate of $0.485 per share. Net sales were $139.7 million, up 9.1% year over year from $128.1 million, with wholesale and contract manufacturing revenue down and retail revenue up 30.8%. Income from operations was $9.6 million, up 12.8% year over year from $8.5 million.
In its earnings release, Rocky Brands also announced that its board of directors approved a new share repurchase program of up to $7.5 million of the company’s outstanding shares.
Ryerson Holding Corporation (RYZ)
(02/13/2026)
Ryerson Holding Corp. and Olympic Steel successfully completed their previously announced merger. Under the terms of the deal, Olympic Steel shareholders received 1.7105 shares of Ryerson Holding stock for each Olympic Steel share held, resulting in former Olympic Steel owners holding about 37% of the combined company. The merger creates one of North America’s largest metals service center networks, combining complementary facilities, products and processing capabilities to better serve customers and pursue growth. The combined business expects approximately $120 million in annual synergies by early 2028 through procurement scale, operational efficiencies and network optimization, while strengthening market presence and future value creation for stakeholders. Starting on February 24, the merged company will trade on the New York Stock Exchange as Ryerson Holding Corp. under the ticker RYZ.
(03/02/2026)
StealthGas reported fourth-quarter 2025 adjusted earnings of $0.36 per share, down 18.2% from $0.44 per share in the prior-year quarter. StealthGas does not have earnings coverage by S&P Global. Revenues were $39.4 million, down 9.4% year over year from $43.5 million due to an incident that caused a vessel to be inoperable. Income from operations was $14.1 million, up from $10.8 million in the prior-year quarter.
Vishay Precision Group, Inc. (VPG)
(02/11/2026)
Vishay Precision Group reported fourth-quarter 2025 adjusted earnings of $0.07 per share, up 133.3% from $0.03 per share in the prior-year quarter. Earnings were 66.1% below the S&P Global consensus estimate of $0.207 per share. Revenues were $80.6 million, up 10.9% year over year from $72.7 million, with growth in the sensors, weighing solutions and measurement systems segments. Operating income was $1.0 million, up 422.6% year over year from $199,000.
Looking ahead, the company forecasts first-quarter 2026 revenues in the range of $74 million to $80 million.
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