Exelon Inches Higher While Xerox Gets Slammed

In November 2012, 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 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 my choices, then I encourage you to review my synopsis of each portfolio selection:

Now let's get to the portfolio and see how it fared for this final week:

Company

Cost Basis

Shares

Total Value

Return

Exelon

$31.25

31.68

$893.06

(9.8%)

Qlogic

$11.46

86.39

$941.65

(4.9%)

Dendreon 

$5.97

165.82

$462.64

(53.3%)

American Eagle Outfitters 

$15.49

63.91

$847.45

(14.4%)

Staples 

$13.48

73.44

$976.75

(1.4%)

Arkansas Best

$10.83

91.41

$2,945.23

197.5%

Arch Coal

$7.03

140.83

$590.08

(40.4%)

Skullcandy 

$6.71

147.54

$1,050.48

6.1%

Orange

$11.64

85.05

$1,042.71

5.3%

Xerox

$8.16

121.32

$1,287.20

30%

Cash

   

$28.28

 

Dividends receivable

   

$187.94

 

Total commission

   

($100.00)

 

Original investment

   

$10,000.00

 

Total portfolio value

   

$11,253.47

12.5%

S&P 500 performance

     

18.1%

Performance relative to S&P 500

     

(5.6%)

Source: Yahoo! Finance, author's calculations. American Eagle Outfitters replaced Dell, which was taken private in October 2013.

This week's winner
With the S&P 500 suffering through its worst week in years, it's befitting that the only stock to move to the upside was electric utility Exelon (NYSE: EXC  ) , which gained 0.2%. That may not sound like a lot, but when fear returns to the market, investors have a pretty knee-jerk reaction that sends them scurrying into defensive and consistent cash flow producers like Exelon. Although the company still has plenty of work left to do in order to lower its overall energy costs, it doesn't exactly have to worry about too much of a fluctuation in energy usage from its customers on a quarter-to-quarter basis, making it an attractive investment, here.

This week's loser
Ending on a down note this week was IT and printing service specialist Xerox (NYSE: XRX  ) which sank 12% after reporting unmemorable fourth-quarter results late last week. For the quarter, Xerox saw its revenue sink 3% to $5.57 billion, slightly missing Wall Street's estimates, while adjusted EPS of $0.29 perfectly bracketed its previous forecast of $0.28-$0.30 in EPS. Service revenue, which represents Xerox's largest opportunity, was flat, while its document technology revenue dipped 6%. Xerox did its best to calm investor fears by boosting its dividend by nearly 9% to $0.0625 in the upcoming quarter, but it was to no avail, as Barclays downgraded Xerox to underweight from equal weight on Monday because of inconsistent service margins. I remain bullish on Xerox's future, specifically as it relates to its health-care services, and would look for the stock to move higher in 2014 and beyond.

Also in the news...
Although it borders on "not counting," I'm going to mention anyway that network infrastructure components supplier QLogic (NASDAQ: QLGC  ) reported better-than-expected third-quarter results after the bell yesterday. For the quarter, QLogic notes that revenue was unchanged at $119.4 million as adjusted EPS increased 45% to $0.29 from $0.20 in the year earlier as its operational improvements and cost-cuts are finally beginning to pay dividends. As storage demand improves due to big data center needs, I fully expect QLogic's top and bottom lines to grow nicely.

Similarly, even though it won't matter for the sake of this portfolio, since today is the official cutoff, trucking company Arkansas Best (NASDAQ: ABFS  ) , hands-down the top performer in this portfolio, declared another quarterly dividend totaling $0.03, which is to be paid out on Feb. 20 to shareholders on record as of Feb. 6. With Arkansas Best hashing out a long-term labor union agreement in 2013, I would look for it to perhaps pay down its debt a bit and even kick shareholders a higher dividend in the coming quarters. Just because this company tripled in 2013 doesn't mean the gas pedal isn't still to the metal!

Finally, international telecom service provider Orange (NYSE: ORAN  ) announced the expansion and renewal of a network capacity agreement with SES, which allows Orange to utilize SES' satellite networks to deliver 3G and 4G wireless speeds to its regional customers. Orange's focus, when not on its core French market, has been Sub-Saharan Africa, but it also hasn't closed the door on other emerging market opportunities, such as Siberia. As a cash cow, I'm still holding Orange in my personal portfolio and plan to enjoy its dividend bounty for years to come.

The final figures
It's hard to believe, but the curtain on our one-year experiment has finally come down. The final tally above shows that the One Person's Trash Is Another Person's Treasure Portfolio managed to gain 12.5% while the S&P 500 added 18.1% for a total underperformance of 5.6%. Furthermore, the portfolio delivered a yield of nearly 1.9% including all regular and special dividends.

Stay tuned for one more week, as I'll go through an in-depth "lessons learned" from this experiment next Thursday.

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