Beating the S&P isn't easy. However, two months ago we started offering selections we claimed would beat the market by 15% before July. These picks were based on a proprietary research method that required four years for us to perfect. The method identifies the most explosive stocks that portfolio managers will be forced to buy and sell when the Russell 2000 (R2K) is reshuffled in June.
The results have been phenomenal. Here's our performance as of May 17:
Chart courtesy of PoisedToTriple.com
With an average holding period of just six weeks, this year's picks are up an average of 24%. Our longs are up 31% and have risen as much as 40%. At its peak, our top performer, Media General , nearly doubled. Our shorts have gained 13% with a peak average return of 24%. Even though the market has been going straight up, both of our short picks have gone down, making a profit for investors.
So What's Next?
In less than two weeks things will really get interesting. On May 31, Russell Investments will rank its candidates and begin its final selection process. 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).
After updating our calculations, we're happy to announce that we are maintaining our stance on each of our five selections. Specifically, as of today, we expect MEG, LCNB Corp , and Palmetto Bancshares to be added to the Russell 2000. Some quick details:
- MEG - Being added to the Russell 2000 should no longer represent a ground-breaking event for MEG. The shares are up 67% and its new-found popularity should make it easier for portfolio managers when they are forced to buy the shares (on June 28).
- LCNB - Riskier than our other two longs, but has explosive potential. If its metrics hold up for the next two weeks (stay tuned for updates), we calculate that portfolio managers will have a hard time accumulating the required number of shares. In other words, a feeding frenzy could ensue
- PLMT - Similar profile as LCNB, but it's a safer choice to join the Russell. Basically, an investor can take their pick based on how much risk (and reward) they want to go for.
On the short side:
- PDII - Reported strong earnings results, but also reiterated that 2013 will be a year of rebuilding / reinvestment for the company. After briefly hitting $6 per share, the stock promptly made an about-face and is quickly heading back toward its lows. With no further catalysts on the horizon, PDII is a safe bet to be deleted from the Russell.
- PERF - Our special analysis of PERF's 10-K accentuated why we selected the company as a R2K short. We also visited many locations to check out the traffic and its updated look. While nice, we don't believe the changes will move the needle much. More importantly, with two weeks to go before Russell Investments locks in its ranking list, we calculate that PERF would have to rise by more than 50% to avoid deletion. This sets up PERF as a favorable short and a good bet to fall over the next 6 weeks.
Stay tuned. We'll be providing special coverage of Russell Investment's rankings lock-down on May 31.
Disclosure: I am long PLMT, LCNB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. I am short PERF.