July Model Shadow Stock Portfolio Update

The Model Shadow Stock Portfolio gained 3.2% in June, increasing its year-to-date return to 38.5%. The portfolio trailed Dimensional Fund Advisors’ DFA U.S. Micro Cap fund (DFSCX), which surged 7.9% during the month. However, it outperformed Vanguard 500 Index fund (VFINX), which declined 1.0%, and nearly matched Vanguard Small Cap Index fund’s (NAESX) 3.5% gain. Over the trailing year, the Model Shadow Stock Portfolio continued to outperform all three benchmarks with its return of 70.0%, compared to gains of 22.2% for Vanguard 500 Index, 29.3% for Vanguard Small Cap Index and 40.5% for DFA U.S. Micro Cap.

June 2026 Market Performance

Market leadership broadened significantly in June as smaller stocks outperformed their large-cap counterparts. The S&P SmallCap 600 index gained 7.3%, while the S&P MidCap 400 index advanced 3.6%. In contrast, the S&P 500 index declined 1.0%, as weakness among large-cap stocks offset gains across much of the broader market. Breadth was especially strong among small-cap stocks, with nearly three advancing issues for every declining issue.

The shift in leadership was also evident across investment styles. Small-cap growth stocks rose 9.6%, while small-cap value stocks gained 5.1%. Mid-cap value outperformed mid-cap growth, advancing 4.1% and 3.1%, respectively. Large-cap value finished flat but outperformed large-cap growth, which declined 1.8%. This broadening participation created a favorable backdrop for the portfolio’s smaller-company holdings.

Sector performance reflected the same trend. The industrials sector gained 7.3% among large caps, 4.9% among mid-caps and 8.9% among small caps. The healthcare sector was another area of strength, particularly among small-cap stocks, which advanced 16.1%. The information technology sector produced mixed results, declining 3.3% among S&P 500 companies while rising 5.2% among mid-caps and 8.6% among small caps.

Energy was the weakest-performing sector across all capitalization ranges, declining between 4.2% and 5.5%. This weakness weighed on several Model Shadow Stock Portfolio holdings, including Amplify Energy Corp. (AMPY) and Oil States International Inc. (OIS), although their losses were more than offset by strong gains among industrials and other holdings.

Small-cap stocks continue to lead the market in 2026, with the S&P SmallCap 600 up 23.9% year to date, compared to the S&P 500’s 10.2% gain. The Model Shadow Stock Portfolio has benefited from this favorable environment for smaller, attractively valued companies and continues to significantly outperform its benchmarks over both the year-to-date and trailing one-year periods.

June Model Shadow Stock Portfolio Performance

Performance during June for the model portfolio reflected a combination of company-specific developments and broader sector rotations. Friedman Industries Inc. (FRD), the portfolio’s strongest performer, gained 37.6% after reporting record results for its fiscal fourth-quarter 2026 ended March 31. The report included sharply higher earnings, strong earnings before interest, taxes, depreciation and amortization (EBITDA), and continued benefits from its Century Metals & Supplies Inc. acquisition. The remaining top performers—Smith Douglas Homes Corp. (SDHC), Eastern Co. (EML), Mastech Digital Inc. (MHH) and Park-Ohio Holdings Corp. (PKOH)—did not report significant company-specific news during the month. Instead, their gains appear to have been driven primarily by improving investor sentiment toward smaller industrial, technology and housing-related companies as market leadership broadened beyond the largest-cap technology stocks.

Among the weakest performers, Gilat Satellite Networks Ltd. (GILT) fell 22.5% after announcing its $157.5 million acquisition of Comtech Telecommunications Corp.’s (CMTL) satellite and space communications business, as investors weighed the integration risks associated with the transaction. The remaining laggards were largely affected by broader industry trends rather than company-specific developments. Amplify Energy and Oil States International declined as lower crude oil prices weighed on exploration and oilfield service companies, while StealthGas Inc. (GASS) and Pangaea Logistics Solutions Ltd. (PANL) were pressured by weakness across energy-related and dry-bulk shipping markets. Overall, June returns demonstrated that while company fundamentals continue to drive long-term performance, shorter-term performance can also be heavily influenced by sector rotation and shifts in investor sentiment.

Shadow Stock Screening Results

As of July 9, 19 stocks met the initial selection criteria for the Model Shadow Stock Portfolio, compared to 18 stocks 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.

Companies that are held in the Model Shadow Stock Portfolio and meet the initial portfolio addition rules are marked as such on the Ideas list. (They are also designated as “currently qualifies” in the Notes column of the Model Shadow Stock Portfolio table on AAII.com. However, the online notes may not match the list discussed here since the notes on the website table are dynamically updated daily.)

Of the 19 qualifying companies, five are currently held in the Model Shadow Stock Portfolio: Alpha Pro Tech Ltd. (APT), Kolibri Global Energy Inc. (KGEI), NACCO Industries Inc. (NC), Regis Corp. (RGS) and StealthGas.

Columbus McKinnon Corp. (CMCO) lost its currently qualifying designation when it reported positive adjusted earnings but negative GAAP earnings for its fiscal fourth-quarter 2026 ended March 31.

Hudson Technologies Inc. (HDSN) and Mastech Digital lost their currently qualifying designations during the month when their price-to-book-value (P/B) ratios edged above 1.00. The Model Shadow Stock Portfolio looks for stocks with a price-to-book ratio of 1.00 or below when adding stocks to the portfolio. Shadow stocks with a price-to-book value three times the initial maximum (1.00 × 3 = 3.00) at the time of a quarterly review are removed from the portfolio, assuming there is a suitable replacement. As of July 9, Covenant Logistics Group Inc. (CVLG) had the highest price-to-book ratio in the portfolio with a value of 2.86, below the 3.00 maximum for removal.

USANA Health Sciences Inc. (USNA) lost its currently qualifying designation during the month when its market capitalization moved above $400 million. 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. Covenant Logistics Group also had the highest market cap in the portfolio with a value of $1.17 billion, just below the $1.20 billion maximum for removal.

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 around the beginning of September, after most of the holdings have announced their second-quarter 2026 earnings. 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!

Model Shadow Stock Portfolio News

Ennis, Inc. (EBF)

(06/22/2026) Ennis reported adjusted earnings of $0.367 per share for its fiscal first quarter ended May 31, 5.9% below the S&P Global consensus estimate of $0.39 per share. Net earnings were $9.9 million, up from $9.8 million in the prior-year quarter. Revenues were $98.6 million, up 1.4% year over year from $97.2 million. EBITDA was $18.0 million, up from $17.7 million in the prior-year quarter. Gross profit margin was 31.5%, up from 31.1% in the prior-year quarter and from 29.2% in the prior quarter. The company noted that it proactively secured inventory and developed alternative supply sources following the closure of the sole domestic producer of carbonless paper. It does not anticipate any disruption to customer service or product availability.

Friedman Industries, Incorporated (FRD)

(06/11/2026) Friedman Industries reported diluted earnings of $1.30 per share for its fiscal fourth-quarter 2026 ended March 31, up 71.1% from $0.76 per share in the prior-year quarter. Friedman Industries does not have earnings coverage by S&P Global. Sales were a record $191.8 million, up from $129.2 million in the prior-year quarter.