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

$945.96

(4.4%)

QLogic

$11.46

86.39

$966.70

(2.4%)

Dendreon 

$5.97

165.82

$525.65

(46.9%)

Dell

$13.37

74.05

$1,021.15

3.1%

Staples

$13.48

73.44

$1,047.99

5.9%

Arkansas Best

$10.83

91.41

$2,202.07

122.4%

Arch Coal

$7.03

140.83

$612.61

(38.1%)

Skullcandy 

$6.71

147.54

$770.16

(22.2%)

Orange 

$11.64

85.05

$874.31

(11.7%)

Xerox 

$8.16

121.32

$1,210.77

22.3%

Cash

   

$0.06

 

Dividends receivable

   

$99.26

 

Total commission

   

($100.00)

 

Original investment

   

$10,000.00

 

Total portfolio value

   

$10,276.69

2.8%

S&P 500 performance

     

9.4%

Performance relative to S&P 500

     

(6.6%)

Source: Yahoo! Finance.

This week's winner
Amid the worst sell-off we've seen in a week over the past year for the broad-based S&P 500, it isn't too shocking to discover that trucking company Arkansas Best (NASDAQ: ARCB  ) was the top gainer over the past week, adding 2.6%. There wasn't any company-specific news moving the stock this week; however, the positive overhang from its recently signed collective bargaining agreement with its labor union appears to be the likely force driving the share price higher. Even I'm a bit stunned at the magnitude of the move in shares, but I do see plenty of value here over the long run. Shares are now up 122% since inception of this deep value portfolio.

This week's loser
But for every winner there must always be a loser, and that title goes to office-supply superstore Staples (NASDAQ: SPLS  ) , which imploded, down 16.9% on the week, after reporting disappoint second-quarter results and a weaker-than-expected full-year outlook. For the quarter, Staples delivered a 2% decline in revenue to $5.3 billion as profits declined to $0.16 per share from $0.19 in the year-ago period. Store closures and an ongoing restructuring took its toll on the company as recently strong international sales also tumbled 8%. Furthermore, Staples lowered its full-year EPS outlook to a range of $1.21 to $1.25 from prior guidance of $1.30 to $1.35. Despite the miss, cash flow for the quarter saw a nice increase from the year-ago period, and I think that with OfficeMax and Office Depot merging, the store attrition that will be created will give Staples a chance to pick up plenty of back-to-school shoppers.

Also in the news ...
Coal miner Arch Coal (NYSE: ACI  ) did end the week marginally lower, but not before announcing the sale of its Canyon Fuel subsidiary in Utah to Bowie Resources for approximately $423 million. This sale represents Arch's ongoing efforts to streamline its operations by selling off non-core assets to reduce costs and raise cash. Arch expects to record a pre-tax gain of roughly $120 million in the upcoming quarter on the sale and anticipates total savings will equal $200 million between 2014 and 2017 as it rids itself of all of its Utah assets.

In this week's episode of "Dells (UNKNOWN: DELL.DL  ) of our Lives," we actually received useful information rather than just buyout banter. Dell, on Thursday of last week, reported its second-quarter earnings results, which were actually a bit "less bad" than anyone expected. For the quarter, PC profits fell by more than 70% as total revenue came in flat at $14.5 billion. Amazingly, though, adjusted EPS topped the Street's expectations by $0.01 to $0.25. The next big date on shareholders' minds is Sept. 12, the official shareholder vote on the proposed Silver Lake/Michael Dell buyout at $13.75 per share after multiple delays. I can tell you one thing: I'm certainly ready to cast my ballot!

Finally, printing services and information technology specialist Xerox (NYSE: XRX  ) received some positive commentary from Jack Hough at Barron's, who claimed that it and Hewlett-Packard could return 20% or more next year. It's not often that I agree with Barron's, but their assessment of Xerox is spot-on. The company is in the midst of a big transition from printing services to IT services, and it stands to gain in a big way once Obamacare becomes fully implemented on Jan. 1 as California's lone Medicaid processing company.

We can do better
If not for Staples, this portfolio would have once again easily outperformed the S&P 500 in a big down week, but sometimes that's just how the cookie crumbles. Over the long haul we still have some very undervalued and attractive names here that I think value investors are overlooking, and I fully expect this portfolio to easily make up the 6.6% underperformance to the S&P 500 and some before the year is up.

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

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