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 investors 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 felt 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 on 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 |
$959.59 |
(3.1%) |
|
QLogic |
$11.46 |
86.39 |
$1,013.35 |
2.4% |
|
Dendreon |
$5.97 |
165.82 |
$983.31 |
(0.7%) |
|
Dell |
$13.37 |
74.05 |
$1,024.11 |
3.4% |
|
Staples |
$13.48 |
73.44 |
$998.78 |
0.9% |
|
Arkansas Best |
$10.83 |
91.41 |
$1,040.25 |
5.1% |
|
Arch Coal |
$7.03 |
140.83 |
$784.42 |
(20.8%) |
|
Skullcandy |
$6.71 |
147.54 |
$957.53 |
(3.3%) |
|
France Telecom |
$11.64 |
85.05 |
$857.30 |
(13.6%) |
|
Xerox |
$8.16 |
121.32 |
$953.58 |
(3.7%) |
|
Cash |
$0.06 | |||
|
Total commission |
($100.00) | |||
|
Original investment |
$10,000.00 | |||
|
Total portfolio value |
$9,572.22 |
(4.3%) | ||
|
S&P 500 performance |
0.7% | |||
|
Performance relative |
(5%) |
Source: Yahoo! Finance, author's calculations.
This week's winner
The standout this week was last week's biggest loser: Staples (SPLS +0.00%). The office supply giant advanced nearly 6% over the past week on the heels of the announced buyout of OfficeMax by Office Depot. The logic behind rallying because its two largest rivals are combining might be a bit odd on the surface, but Staples should benefit from the store closures associated with the synergy of the No. 2 and No. 3 in the office supply space, as well as any integration issues that the two encounter.
This week's loser
The weakest link this week was Dendreon (NASDAQ: DNDN), falling more than 7%. Dendreon was downgraded last week to "sell" from "hold" by Maxim Group, which had a price target of just $4 set on the biotech company -- more than 35% lower than where the stock was trading at the time. With Dendreon having now given up all of its early gains, investors will be counting on the company's cost-cutting measures as well as its European results to drive stock gains in the second half of the year
Also in the news...
While Dell (DELL +0.00%) is still trying to woo shareholders to accept the terms of its orchestrated leveraged buyout, it reported its fourth-quarter results. Consolidated revenue fell 11% year over year, with its consumer segment showing a decline of 24%, while profits dipped 30%. However, adjusted EPS of $0.40 topped Wall Street's estimates by $0.01 and enterprise networking again demonstrated strong growth of 18%. Most important, Dell generated another $1.4 billion in cash flow for the quarter, $3.3 billion for the year, and more than $6 billion in net cash. Even if this buyout doesn't go through, Dell's cash flow and cash balance should net the company a loftier valuation.
France Telecom (FTE 0.35%), a perpetual underperformer thus far, is scheduled to report its results on Thursday. Although estimates for Europe are absolutely dire -- and they deserve to be with the implementation of so many austerity measures at once -- investors seem to forget that France Telecom's Orange mobile business extends beyond Europe into rapidly growing Africa. If France Telecom can stand by its dividend payout, which currently would be for a minimum yield of 10.5% as of this writing, and report solid emerging market growth, I feel a sustainable rally will ensue.
Finally, Zack's noted that two tech research firms, Dell'Oro Group and Crehan Research, have concluded that QLogic (QLGC +0.00%) remains the market-share leader in Fibre Channel adapters. With 53.4% of the market share, QLogic sits ahead of its closest competitor (Emulex) by 11.4%.The report did show that QLogic's lead over Emulex declined year over year, but it nonetheless places QLogic in great shape with regard to taking advantage of increased spending on network infrastructure.
We can do better
I'm sorry to say it was another sad week for my deep-value and contrarian portfolio, which continues to move contrary to the way I'd prefer. Both the S&P 500 and the portfolio lost value this week; however, the One Person's Trash portfolio dipped considerably more. The portfolio is now sitting lower by 5% relative to the S&P 500, but it's still early and this isn't a sprint. Given time, these names should outperform the high-flying S&P 500.
Check back next week for the latest update on the portfolio and its 10 components.
