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 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 could 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

$941.28

(4.9%)

QLogic 

$11.46

86.39

$930.42

(6%)

Dendreon 

$5.97

165.82

$480.88

(51.4%)

Dell

$13.37

74.05

$1,024.11

3.4%

Staples

$13.48

73.44

$1,111.86

12.3%

Arkansas Best

$10.83

91.41

$2,418.71

144.3%

Arch Coal

$7.03

140.83

$574.59

(42%)

Skullcandy 

$6.71

147.54

$945.73

4.5%

Orange

$11.64

85.05

$1,071.63

8.2%

Xerox 

$8.16

121.32

$1,275.07

28.8%

Cash

   

$0.06

 

Dividends receivable

   

$116.04

 

Total commission

   

($100.00)

 

Original investment

   

$10,000.00

 

Total portfolio value

   

$10,890.38

8.9%

S&P 500 performance

     

12.8%

Performance relative to S&P 500

     

(3.9%)

Source: Yahoo! Finance; author's calculations.

This week's winner
Despite no company-specific news, trucking company Arkansas Best (NASDAQ: ARCB  ) topped the charts this week with a gain of 3.6%. Arkansas Best continues to benefit from the ratification of a multiyear labor agreement with union members that will dramatically lower the company's expenses and allow it to more cost-effectively compete against its peers. Although it has already had quite the run higher, Arkansas Best could surprise Wall Street in the quarters ahead.

This week's loser
On the flip side, coal miner Arch Coal (NYSE: ACI  ) had a rough week, losing 11.3% after facing a downgrade to sell from Goldman Sachs, which also set a price target of just $3 on the stock. According to Goldman, Arch is highly levered with debt and could see added costs of early coal plant retirements with coal prices remaining low. However, I see a stabilizing coal market and a push into overseas markets as a good sign that Arch's business is near a turning point.

Also in the news...
In the slowly winding-down daytime drama Dells (UNKNOWN: DELL.DL  ) of our Lives, we got word that the company had cleared all regulatory hurdles and received approval to go private for $24.9 billion in a leveraged buyout by CEO Michael Dell and Silver Lake Partners. In addition, Dell also went ex-dividend this week, pushing its share price down $0.08 but also preparing us to receive another $0.08 per-share payout shortly.

Speaking of companies going ex-dividend and making headlines, office supply superstore Staples (NASDAQ: SPLS  ) also went ex-divvy this week in anticipation of a $0.12 quarterly payment on Oct. 17. Also, just yesterday Staples disclosed the purchase of privately held online shopping software company Runa for an undisclosed sum. Staples said the move will help it offer customers a more real-time and broader inventory selection. This is key, as Staples has a genuine shot at unseating Amazon.com in the office supply direct-to-consumer space in the coming years.

Finally, international telecom service provider Orange (NYSE: ORAN  ) was downgraded to neutral by Exane BNP Paribas on Monday. This is becoming common practice for brokerage firms of late, with Orange having a big run following the Verizon-Vodafone Verizon Wireless deal and the expectation of more asset sales and consolidation. I continue to be encouraged by Orange's push into the emerging markets and would look for its cash flow to support a dividend close to 8%-10%.

We can do better
For the week we neither gained nor lost ground to the broad-based S&P 500. It's certainly been a bit of struggle from the start given that the portfolio is comprised of contrarian and deep-discount names and the S&P 500 has been predominantly shooting to the moon. However, over the long run I'm convinced that contrarian thinking and value-seeking can be an effective way to outperform the S&P 500.

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