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

$874.37

(11.7%)

QLogic

$11.46

86.39

$1,029.77

4%

Dendreon

$5.97

165.82

$469.27

(52.6%)

American Eagle Outfitters

$15.49

63.91

$1,022.56

3.3%

Staples

$13.48

73.44

$1,108.94

12.5%

Arkansas Best

$10.83

91.41

$2,901.35

193.1%

Arch Coal

$7.03

140.83

$595.71

(39.8%)

Skullcandy

$6.71

147.54

$857.21

(13.4%)

Orange 

$11.64

85.05

$1,073.33

8.4%

Xerox

$8.16

121.32

$1,332.09

34.6%

Cash

   

$28.28

 

Dividends receivable

   

$147.38

 

Total commission

   

($100.00)

 

Original investment

   

$10,000.00

 

Total portfolio value

   

$11,440.26

14.4%

S&P 500 performance

     

18.6%

Performance relative to S&P 500

     

(4.2%)

Source: Yahoo! Finance, author's calculations. American Eagle Outfitters replaced Dell, which was taken private in October.

This week's winner
Beaten-down biopharmaceutical company Dendreon (NASDAQOTH: DNDNQ  ) topped the charts this week, logging a gain of 11.9% despite a lack of company-specific news. Dendreon shareholders have seen their greatest source of optimism come from rumors that the company could be shopping itself around to the highest bidder. In addition, it announced another aggressive restructuring, wherein it will shed another 15% of its workforce in an effort to save $125 million annually. It still may not be enough to get Dendreon to profitability based solely on metastatic prostate cancer immunotherapy drug Provenge, but it's certainly a big step in the right direction. 

This week's loser
On the flip side, office supply superstore Staples (NASDAQ: SPLS  ) dipped 5.2% for the week after reporting its third-quarter results before the opening bell yesterday. For the quarter, Staples' sales dipped 4% to $6.11 billion, hurt by tougher competition and negative foreign currency translation. Its adjusted profit, though, matched Wall Street's estimates of $0.42 per share and reversed a year-ago loss. Despite the revenue miss, Staples did stick by its full-year sales and profit forecast, which I feel is a smart move as the merger between Office Depot and OfficeMax should create opportunities for Staples to snag displaced customers as the two smaller supply stores shut underperforming locations.

Also in the news...
On Friday, Mizuho Financial initiated coverage on teen retailer American Eagle Outfitters (NYSE: AEO  ) with a neutral rating and a price target of $17. The move isn't particularly surprising given that American Eagle and the entire teen retailing sector have seen same-store comps head south for months now. However, I would remind investors that American Eagle Outfitters' management team is, by my standards, far superior than your average teen retailer and much more adept at maintaining cash on its balance sheet and managing its inventory levels.

Similarly, Aegis Capital last Thursday initiated coverage on storage and server connectivity components producer QLogic (NASDAQ: QLGC  ) with a buy rating and a $15 price target. Aegis notes that because of the company's strong cash position and stable gross and operating margins, even modest revenue growth should result in big bottom-line gains. I firmly believe that the big spending we're seeing from the telecommunications providers is going to trickle down and be a driving force for QLogic's bottom line in 2014 -- this is also why I purchased shares of QLogic in my own portfolio roughly one year ago.

Finally, in a rather interesting note, renowned short seller Jim Chanos, in the latest quarterly update for his investment firm Kynikos Associates, noted that he purchased shares of coal company Arch Coal (NYSE: ACI  ) . It's an intriguing maneuver for Chanos, who's often a noted skeptic and not afraid to bet against U.S. companies. I've felt for the better part of this year that investors aren't giving coal enough credit, and that asset isn't going to disappear overnight. Arch is making smart moves by pushing hard to expand its export potential and by cutting its capital expenditures. I remain confident it'll turn around its business eventually.

We can do better
Although the S&P 500 was relatively flat for the week, my portfolio of contrarian and deeply discounted names simply wasn't up to the challenge, with the majority of the 10 stocks ending modestly lower. Trucking company Arkansas Best continues to be the true standout. However, printing and IT service provider Xerox, with its approximately 35% gain, may also wind up seeing accelerated gains from its role in the Obamacare rollout and give this portfolio the push it needs to get ahead of the S&P 500 for good!

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

Your search for the next great idea ends right here!
The market stormed out to huge gains across 2013, leaving investors on the sidelines burned. However, opportunistic investors can still find huge winners. The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!


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: 2737139, ~/Articles/ArticleHandler.aspx, 11/23/2014 8:38:56 AM

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...

Today's Market

updated 1 day ago Sponsored by:
DOW 17,810.06 91.06 0.51%
S&P 500 2,063.50 10.75 0.52%
NASD 4,712.97 11.10 0.24%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

11/21/2014 4:01 PM
ACI $2.71 Up +0.18 +7.11%
Arch Coal, Inc. CAPS Rating: ***
AEO $13.68 Down -0.06 -0.44%
American Eagle Out… CAPS Rating: ***
DNDNQ $0.15 Down -0.01 -5.70%
Dendreon Corp CAPS Rating: **
QLGC $11.54 Down -0.02 -0.17%
QLogic Corp CAPS Rating: *****
SPLS $14.05 Up +0.14 +1.01%
Staples CAPS Rating: **

Advertisement