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

$982.71

(0.7%)

QLogic

$11.46

86.39

$991.76

0.2%

Dendreon

$5.97

165.82

$537.26

(45.7%)

Dell

$13.37

74.05

$1,026.33

3.7%

Staples

$13.48

73.44

$1,110.41

12.2%

Arkansas Best

$10.83

91.41

$2,345.58

136.9%

Arch Coal

$7.03

140.83

$704.15

(28.9%)

Skullcandy

$6.71

147.54

$855.73

(13.6%)

Orange

$11.64

85.05

$998.49

0.9%

Xerox

$8.16

121.32

$1,256.88

27%

Cash

   

$0.06

 

Dividends receivable

   

$116.04

 

Total commission

   

($100.00)

 

Original investment

   

$10,000.00

 

Total portfolio value

   

$10,925.40

9.3%

S&P 500 performance

     

14.9%

Performance relative to S&P 500

     

(5.6%)

Source: Yahoo! Finance, author's calculations.

This week's winner
In a true role reversal this week, biotechnology company Dendreon (NASDAQOTH: DNDNQ  ) , this portfolio's worst performer, led the way, with gains of 6.9%. Sending shares higher was news that the European Commission had approved the company's advanced prostate cancer immunotherapy vaccination, Provenge, for marketing authorization in all 28 European countries. This approval is another big step toward Dendreon's march toward profitability, but the bigger question, of course, will be whether or not it can ultimately sell its vaccine overseas. Domestically, Provenge sales are expected to go in reverse this year, and Dendreon can ill afford many more mistakes if it hopes to survive over the long term.

This week's loser
On the other end of the spectrum, trucking company Arkansas Best (NASDAQ: ARCB  ) , far-and-away the best performer, sank 7.7% after being downgraded to hold from buy at Deutsche Bank on Monday. The reason for the downgrade, according to Deutsche Bank, is that it now sees a more balanced risk/reward ratio for Arkansas Best's share price. It did, however, keep its target price unchanged at $29. I wouldn't allow analyst upgrades and downgrades to fluster you all that much as they're typically very short-term price movers. Instead, I'd continue to be encouraged by Arkansas Best's execution in the wake of its renewed labor agreement.

Also in the news...
Write it into the books! Perhaps the only drama that's had as many twists and turns as the Breaking Bad final episodes is finally coming to a close: Dell (UNKNOWN: DELL.DL  ) will be going private at the hands of Michael Dell and Silver Lake Partners for the sum of $13.75/share, plus a $0.13 special dividend, and the certainty of receiving a regular third-quarter dividend of $0.08. The leveraged-buyout vote didn't come as much of a surprise, with Carl Icahn bowing out of the picture during the previous week, and the PC market deteriorating at a rapid pace. If this deal hadn't gone through, shares would almost certainly have screamed lower. The deal is expected to close by the third quarter of next year.

We have... money! Coal miner Arch Coal (NYSE: ACI  ) may be struggling with reducing costs and cutting production in order to balance demand and improve its margins, but that didn't stop the company from paying out a $0.03 quarterly dividend to shareholders this week (thus the slight bump higher in our dividends receivable). I certainly didn't recommend Arch for its dividend, but the ongoing payout, no matter how small, seems to me a good indication that the company sees its current cash flow situation as safe. I would definitely like to see Arch boost its overseas exports in the coming quarters, but for now, I'm pleased with the recent stabilization of prices within the coal sector.

Finally, it appears research firm Zacks had a bit of analyst's remorse when it issued a hold rating on Staples (NASDAQ: SPLS  ) stock on Monday, but recanted that with a strong sell rating less than 48 hours later! According to Zacks, the downgrade comes on the heels of weak earnings results and lower sales results on account of ongoing store closures. As for me, I find the flip-flop over the course of the two-day period to be almost comical, and would use that as a stark reminder that analyst moves are typically just white noise. I still firmly believe that the merger of OfficeMax and Office Depot, and the customer attrition caused by store closures on that front, is going to work in favor of Staples' top and bottom lines over the next two years.

We can do better
It was another record-breaking week for the S&P 500, which seemingly cannot be stopped. As such, with a portfolio of deeply discounted and contrarian companies, it shouldn't come as a surprise that it underperformed this week. A big component of that is Arkansas Best, which as the largest component of the portfolio and, due to its big gains, can exert more influence over the overall gains and losses of the portfolio in percentage terms than, say, Dendreon, which is less than one-quarter its size in terms of portfolio value. However, even with Arkansas Best's drop, I'm encouraged by the steady rebound in many companies in this portfolio recently, and still look for it to vastly outperform the S&P 500 over the long run.

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

Six additional revolutionary growth ideas
Your search for the next great "out-of-the-box" investment opportunity doesn't have to end here! Motley Fool co-founder David Gardner, founder of the No. 1 growth stock newsletter in the world, has developed a unique strategy for uncovering 
truly wealth-changing stock picks. And he wants to share it, along with a few of his favorite growth stock superstars, WITH YOU! It's a special 100% FREE report called "6 Picks for Ultimate Growth." So stop settling for index-hugging gains... and click HERE for instant access to a whole new game plan of stock picks to help power your portfolio.


Read/Post Comments (0) | 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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2646296, ~/Articles/ArticleHandler.aspx, 11/23/2014 3:19:23 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement