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

By Sean Williams - Apr 11, 2013 at 2:46PM

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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

$1,144.92

15.6%

QLogic

$11.46

86.39

$952.02

(3.8%)

Dendreon

$5.97

165.82

$767.75

(22.4%)

Dell

$13.37

74.05

$1,052.25

6.3%

Staples

$13.48

73.44

$1,015.68

2.6%

Arkansas Best

$10.83

91.41

$1,085.04

9.6%

Arch Coal

$7.03

140.83

$783.01

(20.9%)

Skullcandy

$6.71

147.54

$790.81

(20.1%)

France Telecom

$11.64

85.05

$879.42

(11.2%)

Xerox

$8.16

121.32

$1,087.03

9.8%

Cash

   

$0.06

 

Dividends receivable

   

$27.83

 

Total commission

   

($100.00)

 

Original investment

   

$10,000.00

 

Total portfolio value

   

$9,585.82

(4.1%)

S&P 500 performance

     

5.7%

Performance relative to S&P 500

     

(10.8%)

Source: Yahoo! Finance.

This week's winner
Last week I had only two gainers; this week just two losers and plenty of green arrows to contend for the top spot. Coal miner Arch Coal (NYSE: ACI) took the honors this week, reversing last week's 7% loss into a 9.4% gain. Helping Arch, which produces both thermal and metallurgical coal, is the combination of higher natural gas prices, which make coal appear more attractive to electric utilities, and strong results from Alcoa, which stuck to its original estimates for 7% global aluminum growth in 2013. Many signs are pointing to a rebound in the steel industry, which should bode well for the met-coal sector (a steel strengthener) as a whole.

This week's loser
With the bulls out in full force, this week's biggest loser was Dendreon (NASDAQ: DNDN) with a loss of just 1.5% on no company-specific news. Dendreon is still trying to recover from its dismal launch of prostate cancer immunotherapy treatment Provenge, while physicians are still trying to get over the sticker shock: the three-course treatment costs $93,000. However, an approval in the EU could change Dendreon's cards, so that's where all eyes should currently be focusing.

Also in the news...
I do believe I'm just going to give Dell (DELL.DL) its very own permanent spot in the "also in the news" column, as its buyout drama lingers on. Earlier this week, Southeastern Asset Management, Dell's second-largest shareholder with an 8.4% stake, issued an open letter to the board that the $13.65 takeover offer by Silver Lake Partners and Michael Dell simply isn't adequate given the fact that Dell itself repurchased 224 million shares at an average price of $15.25 over the previous two years. As a shareholder myself, I concur with Southeastern Asset Management, but I also understand just how scary PC sales figures have gotten. According to research firm IDC, PC shipments fell 14% in the first quarter for their worst drop in about two decades. This is becoming "buyout or bust" for Dell shareholders.

Office supply superstore Staples (SPLS) powered higher on the week despite receiving a downgrade from research firm Zacks to "underperform" last Thursday. The reasoning behind the downgrade had to do with weak economic growth and tighter consumer spending. As for me, I see this as more analyst white noise. The pending combination of OfficeMax and Office Depot is bound to create disruptions that Staples will be able to exploit. Compound this with the introduction of Apple accessories last month and I feel Staples presents a compelling turnaround candidate.

Finally, printing and information technology specialist Xerox (XRX) found itself on the right side of an analysts' call when it was initiated with an overweight rating by Piper Jaffray late Wednesday with a $12 price target. It's not hard to understand why Piper is bullish given Xerox's move into Medicaid service processing, which is only bound to see a huge boost in demand once the Patient Protection and Affordable Care Act goes fully into effect in 2014. In short, this isn't your parents' Xerox any longer!

We can do better
With eight out of 10 stocks higher this week, the contrarian and value portfolio was able to slightly outduel the S&P 500 and reduce the outperformance gap by 0.2%. While I'm happy with this week's outperformance given how strong the market was, I know there's a long way left to go, and that this portfolio is primed to outperform if the market ever decides to stop going straight up.

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

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Stocks Mentioned

Dell Technologies Inc. Stock Quote
Dell Technologies Inc.
DELL.DL
Staples, Inc. Stock Quote
Staples, Inc.
SPLS
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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