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A couple weeks ago, I talked about the recent performance of our "Retire Young" portfolio and how it's been outperforming the market by a healthy margin. Now it's time to make some adjustments in the portfolio so that we can continue to beat the market consistently. Since the inception of this portfolio in April, almost every stock I picked was able to outperform the market's performance during the same period. Now we are going to switch gears and make some "brave" decisions.

First, a reminder for those that haven't been following this portfolio: the "Retire young" portfolio was initiated with 11 companies that are roughly equally distributed. These are the companies we started out with (click on the company name in order to see the related article):

1. Monster Beverage (NASDAQ:MNST)

2. Statoil (NYSE:STO)

3. American Express (NYSE:AXP)

4. Wells Fargo (NYSE:WFC)

5. Disney (NYSE:DIS)

6. Hewlett-Packard (NYSE:HPQ)

7. Smith Wesson Company (NASDAQ:SWHC)

8. The Cheesecake Factory (NASDAQ:CAKE)

9. Santarus (NASDAQ:SNTS)

10. Hertz (NYSE:HTZ)

11. First Solar (NASDAQ:FSLR)

Of these companies, the top performers are Hewlett-Packard with a return of 26.64% and Smith Wesson with a return of 26.34%. We also have Wells Fargo that appreciated by 14.44% since the inception of the portfolio. Usually, when investors are adjusting their portfolio, they are advised to replace the worst performers with new stocks. In this instance, we are going to do the complete opposite and replace the top performers. After all, if our goal is to buy cheap and sell high, then we should be selling the stocks that have posted the best performance and had the best chance of appreciation. If we believe in our other stocks, we should hold onto them because they haven't had the chance to appreciate like the top performers have, which means there is more room for them to move up than the high-performers. Of course, it's a different story if we don't believe in a company's current or future valuation anymore. Then we can sell it regardless of its past performance. After all, the stock market is future oriented.

So, who are we adding to the pool if we are removing Hewlett-Packard, Smith Wesson and Wells Fargo? We are going to play a quite contrarian game in this adjustment. We are going to add 3 companies that have been oversold in the recent weeks due to fear and overreaction. These companies still have strong fundamentals and they are likely to bounce back once the fear wears off. I am talking about Microsoft (NASDAQ:MSFT), IAMGOLD (NYSE:IAG) and SodaStream (NASDAQ:SODA).

Microsoft: The company's share price plunged from $36.40 to $31.45 after it posted somewhat weak results. Microsoft suffers from a slowing economy in Asia, a strong recession in Europe and a slowing market for PCs overall. There is also intense competition from Apple, Google and other companies. Excluding cash, Microsoft trades for a future price-to-earnings ratio of 8, which makes it a very attractive opportunity. A few months ago, when I recommended buying Hewlett-Packard and added it to this portfolio, it didn't go so well with many of my readers but the company turned out to be the best performer in the portfolio. Who knows, maybe we'll see a similar performance from Microsoft.

IAMGOLD: The company suffers from weak gold prices in the recent weeks. Excluding cash, the company's P/E current ratio is as low as 5 even though the number is likely to increase a little bit if gold prices stay weak in the short-to-medium term. The company has plenty of cash and gold sitting on the sideline to withstand the hard days in case the weakness in gold prices continues on. IAMGOLD is also taking a proactive approach by cutting costs across the board to reduce the production price of gold to prepare itself for the worst. The company's current share price of $5.30 is well below where it was a few months ago ($16.00 to be exact). The company has a dividend yield of 4.70%, which rewards the patient investors who hold on.

SodaStream: Once the speculations regarding an acquisition from either Coca-Cola or Pepsi fell down, the company entered a sell-off mode where its share price fell from high $70s to mid $50s. I even recommended this stock a couple weeks ago. While SodaStream's valuation is now as low as Microsoft and IAMGOLD the company has a lot of growth ahead. SodaStream's current P/E of 26 is expected to fall to low teens by 2015 due to strong growth prospects. The company's management voiced very concrete goals regarding the future as it targets reaching $1 billion in revenues by 2015.

We are going to add 400 shares of Microsoft at $31.45, 2000 shares of IAMGOLD at $5.30 and 200 shares of SodaStream at $58.55 to our portfolio. For the time being, we are not going to sell any covered calls.

In April 17, we initiated this portfolio with cost basis of $108,602 and today, the portfolio's current value is $124.857 (excluding some cash and dividend payments), which represents a growth rate of 14.97% compared to the appreciation of the S&P 500 index by 7.17% and the appreciation of the Dow Jones index by 5.28% during the same period. As we move forward, I'm confident that we will continue to outperform the market. Next month, I will offer a more detailed analysis of this portfolio's performance (Remember, there are 2 versions of the portfolio, one sells covered calls and the other doesn't. Everything else is the same between the two versions).

Source: Time To Make Some Adjustments To The 'Retire Young' Portfolio