Three stocks which we previously noted had left the "low-quality" weekly portfolio as of April 9, 2010 led the performance of all model portfolio stocks on Monday, April 12. These included Arch Coal Inc. (ACI) up 3.28%, SunTrust Banks Inc. (STI) up 2.76%, and EOG Resources, Inc. (EOG) up 2.31%. ACI and EOG have already experienced double digit gains for April.
Interestingly, these stocks moved off the "low-quality" list due to significantly higher analyst revisions, probably as the result of analysts anticipating positive 1Q10 reported results. A theme we have increasingly been highlighting over the last few weeks is the surge in "low-quality" stocks as they continue to anticipate or react to "surprisingly" positive data points or anecdotes. Finding "low-quality" stocks that are likely to face easy fundamental comparisons and positive estimate revisions are likely to bear fruit in the weeks ahead.
For the month to date, a market neutral portfolio composed of "high-quality" and "low-quality" stocks is down 1.76% as "low-quality" stocks continue to surge. A more aggressive strategy that uses no offsetting short positions in an uptrending market is up 6.42% versus 2.27% for the S&P 500.