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:

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

Company

Cost Basis

Shares

Total Value

Return

Exelon

$31.25

31.68

$975.43

(1.5%)

QLogic

$11.46

86.39

$1,004.72

1.5%

Dendreon

$5.97

165.82

$925.28

(6.5%)

Dell

$13.37

74.05

$1,030.78

4.1%

Staples

$13.48

73.44

$973.08

(1.7%)

Arkansas Best

$10.83

91.41

$1,028.36

3.9%

Arch Coal

$7.03

140.83

$766.12

(22.6%)

Skullcandy

$6.71

147.54

$913.27

(7.7%)

France Telecom

$11.64

85.05

$842.00

(14.9%)

Xerox

$8.16

121.32

$992.39

0.2%

Cash

   

$0.06

 

Total commission

   

($100.00)

 

Original investment

   

$10,000.00

 

Total portfolio value

   

$9,451.49

(5.5%)

S&P 500 performance

     

0.9%

Performance relative to S&P 500

     

(6.4%)

Source: Yahoo! Finance.

This week's winner
In a very volatile week, Xerox (NYSE: XRX  ) took the prize as this week's top performer, rising better than 4% after announcing a 35% increase to its quarterly dividend. Xerox, which is in the midst of transitioning from a print service company into an information technology provider in the rail and health care industries, has decided to boost its payout to $0.0575 quarterly from $0.0425. The boost will raise Xerox's yield from its current 2.1% to 2.8%. I can only surmise that its Medicaid processing business is going to see a major influx of business as soon as the Affordable Care Act kicks in fully next year, so consider yourself warned to the ongoing transformation at Xerox.

This week's loser
Woe has been Dendreon (NASDAQ: DNDN  ) since it received a sell rating and a $4 price target from Maxim Group. Shares fell another 6% this week after the biotech reported its fourth-quarter results, which largely underwhelmed analysts. For the quarter, Provenge sales totaled $81.6 million, which is 51% higher than the year-ago period. We also saw the effects of Dendreon's cost cuts beginning to take effect with a quarterly loss of just $0.26 per share versus the $0.56 per-share loss the Street expected. The next big hurdle for Dendreon will be in gaining EU approval for Provenge; we should have a better idea of whether or not that's possible by midyear.

Also in the news...
France Telecom
(NYSE: ORAN  ) , the second-worst-performing company in the portfolio thus far, also reported its quarterly results last week. As expected, competition from cost-conscious mobile providers Free Mobile and Vivendi's SFR constrained margins in France Telecom's mobile division, known as Orange. However, it added a net of 7 million customers in Africa and the Middle East and maintained its market share in France despite a rollout of more expensive media and data packages. With the company standing behind its dividend guidance of at least $1.05 annually, France Telecom is yielding north of 10%, and I'm personally tempted to add even more to my personal holdings.

Shareholders of thermal and metallurgical coal producer Arch Coal (NYSE: ACI  ) finally have a little something to look forward to with the stock going ex-dividend yesterday. Even though the dividend is only $0.03 and payable March 15, following the 23% shelling shareholders have endured over the previous four weeks, I'm sure they're looking forward to it. Another slight bit of positive news came from mining equipment manufacturer Joy Global, which reported this week that destocking is finally occurring in the commodities industry. This bodes well for Arch, as a lower coal supply could help boost pricing and bring Arch back into the black. 

Finally, office supply chain Staples (NASDAQ: SPLS  ) , despite a small pullback this week, garnered the attention of Citigroup, which upgraded the company last week to "neutral" from "sell." Like many other analysts, Citigroup understands that the upcoming buyout of OfficeMax by Office Depot will create opportunities for Staples with store closures and synergy hiccups. If Staples can capture and retain these displaced customers, we could be looking at a deeply discounted office supply store in just a matter of months.

We can do better
I'm sad to say that the trend continued once again and the S&P 500 outperformed my deep-value and contrarian portfolio for a fourth consecutive week. As I continue to emphasize, this isn't a sprint, and these companies are built on strong cash flow and steady business models that should outperform the S&P 500 over the long term.

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

Resurgence, or dead-cat bounce?
Shares of Dendreon have surged in recent months, with the stock gaining new life from the depths of late 2012. Has the company really solved its underlying problems, or are investors setting themselves up for more disappointment? Our new premium research report on Dendreon answers these questions, and many more, while also outlining just how Dendreon intends to regain its former glory. Claim your copy, and a year of free analyst updates, by clicking here now.


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  • Report this Comment On February 28, 2013, at 12:40 PM, Paulson545 wrote:

    This was just reported today. Markels opened a new position in Arch Coal of 56,000 shares.

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