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

Last November, 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 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 thought 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 of 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

$952.93

(3.7%)

QLogic

$11.46

86.39

$901.91

(8.9%)

Dendreon

$5.97

165.82

$713.03

(28%)

Dell

$13.37

74.05

$985.61

(0.4%)

Staples

$13.48

73.44

$1,167.70

18%

Arkansas Best

$10.83

91.41

$2,084.15

110.5%

Arch Coal 

$7.03

140.83

$523.89

(47.1%)

Skullcandy

$6.71

147.54

$783.44

(20.9%)

Orange

$11.64

85.05

$784.16

(20.8%)

Xerox

$8.16

121.32

$1,125.85

13.7%

Cash

   

$0.06

 

Dividends receivable

   

$84.53

 

Total commission

   

($100.00)

 

Original investment

   

$10,000.00

 

Total portfolio value

   

$10,107.26

1.1%

S&P 500 performance

     

7.6%

Performance relative to S&P 500

     

(6.5%)

Source: Yahoo! Finance.

This week's winner
The top dog this week was, again, the star of this deeply discounted value portfolio, Arkansas Best (NASDAQ: ARCB  ) . The trucking company soared 18% on the week after announcing that its ABF teamsters had ratified a five-year collective bargaining agreement, and passed a majority of supplements in the ABF National Master Freight Agreement. This news paves the way for Arkansas Best to, once again, be cost-competitive with its peers without having to reduce its workforce. Shares have now more than doubled in just the past two months.

This week's loser
The laggard this week was foreign telecommunications provider Orange (NYSE: ORAN  ) (formerly France Telecom), which dipped 4.2% on the week. Although no company-specific news set off the pessimism, regional worries out of Portugal that austerity measures may not stick sent ripples of fear throughout Europe, where the heart of Orange's revenue stream is located. I purchased Orange in my own portfolio late last year on the high prospects for its emerging market growth coupled with steady European cash flow. While I certainly haven't liked seeing its dividend get cut by more than 40%, and feel more hiccups may be on the way, I see it as an incredible cash cow at these levels, and am still considering adding to my position.

Also in the news...
In the latest installment of "Dells (UNKNOWN: DELL.DL  ) of Our Lives," Carl Icahn announced that he'd arranged for $3.4 billion of the $5.2 billion needed for the debt financing portion of his Dell leveraged buyout offer. Icahn is counting on independent shareholder advisory group ISS to back his bid (they've yet to make their stance on either offer known, but are expected to shortly), which could force Michael Dell to bump his takeover price higher -- if anything, at least to match Icahn at his proposed $14 shareholder tender offer. We are now just two weeks away from the shareholder vote, so expect some volatility in shares moving forward. 

Dendreon (NASDAQ: DNDN  ) shareholders received the news they've been waiting an eternity to hear late last week: a positive opinion on Provenge by the Committee for Medicinal Products for Human Use, or CHMP. While the European Medicines Agency isn't required to follow the opinion of the CHMP, it often does, giving Provenge a good chance of gaining approval in Europe before the year is out. While it may not seem like much, with competition in the EU over advanced prostate cancer treatments accelerating, this is a big step toward Dendreon moving toward a lower cash burn rate, and could, once again, reignite takeover chatter.

If you notice a bit more cash in coffers this week, it's because we received our quarterly distribution of $0.0575 per share from Xerox (NYSE: XRX  ) on Monday. Xerox is an extremely sneaky play on the implementation of the Patient Protection and Affordable Care Act, because it processes all of California's Medicaid claims. Medicaid is set to expand in a big way across the country, bringing some 16-million new members under its umbrella over the next couple of years. Sure, Xerox still makes money from its legacy printing and service revenue; but it's so much more than that now!

Also worth a quick mention, QLogic shares spiked higher on Wednesday after rumors swirled that its peer, Emulex, may have hired an investment bank to seek out strategic alternatives. As a cash-rich and profitable rival to Emulex, it's not surprising to see buying interest building in QLogic, as well.

We can do better
I might be a bit biased, but I'd call this, perhaps, the best overall week this contrarian portfolio has had since its inception. Of course, a big part of that has to do with the continued surge in Arkansas Best, but many other components also handily outperformed the S&P 500 for the week. Collectively, this is also the first time the portfolio has sat in positive territory, now up 1.1% since inception. Dividends are starting to play a crucial role in providing supplemental income, but I feel that investors are starting to finally realize and unlock some of the hidden value in these discounted gems.

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

As this portfolio has shown, dividend income can be quite a nice supplement to your income. If you're on the lookout for high-yielding stocks, The Motley Fool has compiled a special free report outlining our nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here.


Read/Post Comments (3) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 04, 2013, at 3:05 PM, 48redbadger wrote:

    Have watched this portfolio with interest as I own a fairly significant amount of Orange. Keep thinking the bottom has been reached but the blood continues to flow. Have owned for 2+ years. Is this a 10 year turnaround or is there hope around the corner?

  • Report this Comment On July 04, 2013, at 3:33 PM, TMFUltraLong wrote:

    48redbadger,

    It's certainly not an overnight turnaround. I've really been anticipating the company's African growth will pull it out of the doldrums, but it'll need it's European business to stabilize first. The dividend alone makes it worthwhile here IMO, and is why I own it in my own portfolio.

    Sean

  • Report this Comment On July 05, 2013, at 12:57 AM, garifolle wrote:

    When you think what other portfolios have done since november, I think you just made the proof that contrarian investing was not the best way to make money!

    At least the way you understood "contrarian".

    And holding to stocks until they are down by more then 15% is the best recipe to loose 40%!

    And how in the world could you expect coal to do well?

    Even if the market is stupid and overvalues some stocks, follow the trend.

    RIMM (sorry BBRY) did so much better that even with last week drop you'd be winning.

    Not good for "the Fool"

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