This weekend, Russell Investments released its preliminary list of additions and deletions for its annual reshuffling of the Russell 2000. This annual event represents a juicy opportunity for investors who can identify the winners (and losers) before they are selected.
Over the past several years, PTT Research has developed a proprietary process to navigate Russell Investments' extensive methodology. It has enabled us to uncover and rank the prospects most likely to make the list and deliver the greatest profits to investors. The reward for being right has been a perennial money-maker for our readers, delivering documented annualized returns in excess of 100% each year.
I'm pleased to announce that each of our 2014 prospects has made Russell Investments' preliminary list.
Our first selection of the year was Old Line Bancshares (NASDAQ:OLBK). OLBK was introduced to PTT Research subscribers on January 16. We subsequently provided this pick to Seeking Alpha readers. The stock has performed admirably, rising 12%, while the Russell 2000 has declined by 1%. This represents a 31% annualized return in the face of a flat-to-declining market. More importantly, our prediction that Old Line would be added to the Russell received a significant boost when the company was named to the preliminary list this weekend.
The company was already performing well before this latest good news. In fact, insiders were spurred to purchase shares in September. Its subsequent execution drew praise from other Seeking Alpha contributors. OLBK's book value has risen from $70M on 12/31/12 to $109M as of 9/30/13. Also, its free cash flow (FCF) has been a steady $12M annually, providing a solid FCF yield. Thus, over the coming weeks, we expect demand for the shares to benefit from forced demand, as well as fundamental attractiveness.
Our second prospect was Tiptree Financial (NASDAQ:TIPT), which we selected for our readers on April 3. We subsequently released this pick to the broader public on April 19. From the time of our initial report, TIPT has risen 17%, while the Russell 2000 has fallen 1.6%. This represents a mouthwatering 113% annualized return to-date.
Based on our calculations, entering the Russell will require over 500,000 shares of buying on June 27. Its average daily volume is closer to 30,000 shares, so further gains could be in the cards. Fundamentally, in 2013, TIPT delivered 88 cents of Economic Net Income per share (Economic Net Income is TIPT's non-GAAP financial measure of profitability), resulting in an adjusted P/E of 11. Because of these factors, we remain bullish on the shares.
In addition to OLBK and TIPT, there are four selections that we only provided to PTT Research readers (three longs and one short). We have made those selections available to the general public here and here. Each of those four selections also appeared on Russell's preliminary list this weekend, giving us a perfect 6-for-6 win rate for this year's PTT Spring Portfolio.
Now that Russell's preliminary list has been released to the public, investors can expect a continued surge in demand for the pending winners... and a surge in selling for the losers. This bodes well for Old Line Bancshares, Tiptree Financial, and our other selections.
Russell Investments will provide updates over the coming two weeks, culminating in the final reconstitution on June 27. On that day, ETFs and other funds will be required to buy large blocks of the new additions (and sell large blocks of the deletions). This will create millions of dollars of demand for each of the lucky companies' shares (and similarly, tremendous selling pressure for the losers).
Between now and then, we intend to provide one more exclusive update to Seeking Alpha readers. We will also deliver near-daily live updates (starting today) at PTTResearch.com. Features will include a countdown of the 5 most attractive longs and shorts, as well as proven strategies to lock-in gains, so stay tuned.
Disclosure: The author is long OLBK, TIPT. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.