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Beating the S&P isn't easy. However, less than a month ago we offered selections we claimed would beat the market by 15% before July. That claim proved to be too conservative. In fact, our picks have outperformed by more than 15% over the past month. In this article, we'll discuss the key catalysts and why we believe Palmetto Bancshares (PLMT) is next.

On May 31, Russell Investments will initiate its 2013 reshuffling of the Russell 2000 index (also known as "the Russell" or "R2K"). When the new Russell 2000 list is announced, ETFs and other fund managers will be obligated to buy the new additions and sell the deletions. This will create millions of dollars of demand (or selling pressure) for the winners (or losers). Being early to buy or short the right names has obvious implications.

Identifying the winners and losers is not easy though. The selection process is impacted by Russell Investment's extensive inclusion criteria, along with market forces, including IPOs, M&A, earnings reports, and stock market fluctuations. Over the past several years, Pipeline Data has developed expertise in this regard and offers its insights exclusively on SeekingAlpha.

Our 2011 picks went 6 for 6, outperforming the market by an average of 19% in just six weeks. After a one-year hiatus for further research and development, we returned to offer our 2013 predictions. Thus far, we've made fewer picks, but the results have been more impressive than ever. Here's our current official portfolio and performance statistics:

TickerCompanyDatePositionInitial PriceCurrent PriceCurrent ReturnPeak Return
MEGMedia General3/17/2013Long5.507.5237%51%
PERFPerfumania3/17/2013Short5.915.763%10%
PDIIPDI, Inc3/24/2013Short6.084.5126%24%
LCNBLCNB Corp4/14/2013Long16.9817.775%10%
Averages 17%24%
Non-official picks for R2K inclusion are: Neogenomics NEO, Uni-Pixel UNXL, and Vringo VRNG.
Non-official picks for R2K deletion are: Berkshire Bancorp BERK.

As you can see, all four picks are in the green and have returned an average of 17% in about a month. You can view our original selection articles by clicking on the Initial Price links. Today, we'll provide a quick update on Perfumania (PERF) and introduce the newest pick we expect to be added to the Russell - Palmetto Bancshares .

Palmetto Bancshares Will Enter the Russell 2000

Wednesday morning, Palmetto Bancshares reported first quarter 2013 net income of $2.2 million or $0.17 per diluted share. Pre-tax income increased to $3.0 million from $1.8 million in the fourth quarter 2012. According to the release, "The Company has now reported three consecutive quarters of net income and expects to remain profitable for the remainder of 2013."

Also, CEO Samuel L. Erwin stated, "The earnings momentum with which we ended 2012 has carried over into the first quarter of 2013. While we are still facing a challenging economic environment, we expect to continue this profitable trend as we execute our plan to return to high-performing status."

PLMT's book value continued its rebound, increasing 1.5% over the past 3 months and 11% over the last 9 months. Its market cap is currently $150 million, which is plenty to propel it into the Russell 2000 in a couple months. Further, the company is not expected to report any significant news between now and then. In other words, the coast is clear.

Upon selection, Russell fund managers will be forced to buy 400,000 shares of PLMT. This represents 400 times its average daily volume -- twenty times more potent than most major short squeezes. Needless to say, that sets up a favorable supply/demand dynamic, making PLMT a good bet to rise over the next 8-10 weeks.

Perfumania: Stores Look Better, But Stock Will Exit The Russell

We visited a couple of Perfumania stores to see if they had made any improvements. We found that they had replaced the missing letters in its Miami Beach store, which is a positive, albeit a modest one. The company still has to contend with increasing competition from fast-growing vendors like Amazon (AMZN) and Ulta (ULTA).

A bigger issue is that the flood of IPOs hitting the market are going to make it virtually impossible for PERF to remain in the Russell. Its market cap has fallen to under $90 million, so the stock will likely have to rise 33% to stay in. Otherwise, 3 months worth of shares will hit the market when Russell managers are forced to sell on June 28.

That's a bigger headwind than most stocks face when their IPO lock-ups expire. This sets up PERF as a favorable short and a good bet to fall over the next 8-10 weeks.

Accordingly, I remain short the stock.

Source: Russell 2000 Update: Long And Short Picks For Easy Gains