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One Person's Trash Is Another Person's Treasure Portfolio

By Sean Williams - Apr 5, 2013 at 6:30PM

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A yearlong exercise intent on proving that value and contrarian investing can be incredibly successful.

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 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 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

$1,092.96

10.4%

QLogic 

$11.46

86.39

$950.29

(4%)

Dendreon

$5.97

165.82

$779.35

(21.3%)

Dell

$13.37

74.05

$1,053.73

6.4%

Staples

$13.48

73.44

$959.86

(3%)

Arkansas Best

$10.83

91.41

$1,013.74

2.4%

Arch Coal

$7.03

140.83

$715.42

(27.8%)

Skullcandy

$6.71

147.54

$764.26

(22.8%)

France Telecom

$11.64

85.05

$840.29

(15.8%)

Xerox

$8.16

121.32

$1,038.50

4.9%

Cash

   

$0.06

 

Dividends receivable

   

$27.83

 

Total commission

   

($100.00)

 

Original investment

   

$10,000.00

 

Total portfolio value

   

$9,236.29

(7.6%)

S&P 500 performance

     

3.40%

Performance relative to S&P 500

     

(11%)

Source: Yahoo! Finance.

This week's winner
For the second week in a row the portfolio performed -- for lack of a better word -- miserably. Filled with contrarian and value plays, they decisively underperformed in a market hitting new highs. Utility provider Exelon (EXC -0.42%) turned in the best performance, gaining 2.2%, and was one of only two of 10 companies to finish the week higher. Exelon's rebound has a lot to do with the probable outlook that nuclear energy will play an important role in America's energy independence. With a yield near 4%, Exelon offers plenty of upside to income-seeking investors.

This week's loser
Although I had plenty to choose from in the loss column this week, coal miner Arch Coal (NYSE: ACI) took the top spot, with a 7.1% loss on the week. There wasn't any company-specific news, in particular, driving Arch lower. Instead, an overall apathy toward coal stocks, in general, seems to have pushed Arch lower, as many have struggled with higher costs, oversupply, and cheap natural gas prices in recent months.

Also in the news...
It wasn't a big bump, but if you look at the dividends receivable column above, you'll note that it rose by $6.98 from the previous week. That would be because office supply and IT-management company Xerox (XRX) paid out its recently raised quarterly dividend of $0.0575 per share on Monday. Xerox has remained one of the best-performing companies within the portfolio, because it relies on its legacy printing business to generate consistent cash flow while using that cash flow to reinvest in IT-software that will help it grow for the next decade.

Network infrastructure products maker QLogic (QLGC) seems to have caught exactly what Dendreon had last week, as it finished unchanged, or down, in 11 of the past 13 sessions. The culprit this week appears to be a downgrade from TheStreet.com, which moved QLogic down to a "hold" from a "buy." TheStreet.com focused specifically on QLogic's lack of EPS growth as the primary reason for its downgrade, although it did note its incredible cash position as a positive point of contention. 

Service provider France Telecom (ORAN 0.41%) also could not escape the downgrade bug this week, falling under the scrutiny of research firm UBS, which anointed France Telecom with the dreaded "sell" rating, coming down from "neutral." The opinion on France Telecom has been relatively grim among Wall Street analysts, given that much of its core eurozone business is under pressure from austerity measures that will result in lower consumer spending, and tougher competition from low-cost service provider Free. I remain steadfast in my opinion that France Telecom's business outside of France, and its amazing cash flow, make it a no-brainer buy.

We can do better
This may have been the most disappointing week yet, with the S&P 500 hitting two all-time records, and my contrarian and value portfolio hitting its lows. However, I know all too well that the market can't go up forever, nor can these well-known and deeply discounted companies fly under the radar forever. I'm confident that, over the long term, this group of companies will surprise to the upside, and prove the value of deep value and contrarian investing.

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

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Stocks Mentioned

Orange Stock Quote
Orange
ORAN
$12.26 (0.41%) $0.05
Exelon Corporation Stock Quote
Exelon Corporation
EXC
$47.15 (-0.42%) $0.20
QLogic Corp. Stock Quote
QLogic Corp.
QLGC
Xerox Corporation Stock Quote
Xerox Corporation
XRX

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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