One Person's Trash Is Another Person's Treasure Portfolio

In November 2012, I announced my intention to create a portfolio of 10 companies that investors had effectively thrown away and given up on, in the hope of showing investors that deep-value investing and contrarian thinking can actually be a very successful investing method. I dubbed this the "One Person's Trash Is Another Person's Treasure" portfolio, and, over a 10-week span, I highlighted companies that I felt fit this bill and would expect to drastically outperform the benchmark S&P 500 over the coming 12 months. If you're interested in the reasoning behind why I chose these companies, then I encourage you to review my synopsis on each portfolio selection:

• Exelon
• QLogic
• Dendreon
• Dell
• Staples
• Arkansas Best
• Arch Coal
• Skullcandy
• France Telecom
• Xerox

Now, let's get to the portfolio and see how it fared this week:

Source: Yahoo! Finance, author's calculations.

The week's winner
This week's big winner was actually its biggest loser at one point as well: audio accessories maker Skullcandy. Shares advanced 4% this week after CEO Jeremy Andrus announced his intentions to step down and take a job at a private investment firm. While no one likes a change in management (as was evidenced by the nasty tumble shares took on Friday), the good news is that Skullcandy's founder and former CEO, Rick Alden, will serve as the interim CEO while a new CEO search is conducted. If there was going to be a change at the top, why not reinstall the figure who gave Skullcandy prominence in the first place?

The week's loser
This week's most disappointing performer was Staples, which drifted lower by 4.5% on the week. Although no specific company news sent the stock lower, a weak U.S. retail sales figure showing growth of just 0.1% in January compared to 0.5% in December could be worrying investors that higher tax rates will crimp individual and small-business spending. I feel there could be some merit to this concern, but also would point to Staples' proactive downsizing and mobile device focus as a reason that foot traffic should be higher when it does report earnings.

Also in the news...
PC maker Dell continues to garner big headlines with its $24.4 billion bid to go private. Ultimately, it will come down to shareholders to decide whether or not to accept the $13.65 per-share bid. Dell's second-largest shareholder, Southeastern Asset Management, which holds an 8.5% stake, and T. Rowe Price, Dell's third-largest shareholder with a 4.4% stake, have both publicly opposed the deal, noting that it undervalues Dell. As a shareholder myself, I can't say I'm thrilled with accepting a $13.65 per-share offer, and it could mean Silver Lake Partners and Dell kicking in a higher price tag or special dividend in order to get the deal done.

Diversified utility company Exelon reported its fourth-quarter results and offered fiscal 2013, as well as dividend payout, guidance. For the fourth quarter, revenue rose 44% to $6.28 billion, aided largely by acquisitions, as profit declined to an adjusted $0.64. Revenue figures were higher than expected, but EPS missed by $0.01. Moving forward, Exelon announced it'd be paying a quarterly dividend of $0.525 on March 8, 2013, consistent with its previous payout, but would be dropping its quarterly payout to $0.31 thereafter. While I'm not thrilled with this move, Exelon will still be yielding around 4%, and more important, it'll give the company ample liquidity to invest in non-nuclear energy programs. With EPS of $2.35 to $2.65 expected in 2013, I still find Exelon an inexpensive and intriguing play. 

Finally, Dendreon will be presenting data on multiple single and combination studies of its prostate cancer treatment, Provenge, from Feb. 14 to Feb. 16. Of particular interest, given that the abstract data is already available, is a combination study conducted between it and Johnson & Johnson's Zytiga, which demonstrated that the combination of the two therapies created a similar adverse event and efficacy profile. Dendreon's best chance for success is as a combination therapy, and this small study of 29 patients appears to be a good start.

We can do better
Overall, the portfolio retreated slightly again, with Arch Coal and France Telecom weighing heavily. I'm down 3.4% to the market, including commission costs, after two weeks; but I'll remind you this is a marathon, not a sprinting contest.

Check back next week for the latest update on the portfolio and its 10 components.