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

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:

• Exelon
• QLogic
• Dendreon
• Dell
• Staples
• Arkansas Best
• Arch Coal
• Skullcandy
• France Telecom
• Xerox

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

Source: Yahoo! Finance.

This week's winner
I'm not quite sure how to put this, but there wasn't a single winner in the portfolio this week. With all 10 companies down, the best highlight I can provide is electric utility Exelon (EXC 2.37%), which dropped "just" 0.2% on the week. While no company-specific news drove Exelon's price up or down, the simple fact that electricity is a necessary item that consumers need, regardless of how well the stock market performs, will keep demand largely unchanged, and continue to provide measurable cash flow for Exelon to reinvest in alternative energies and infrastructure upgrades.

This week's loser
I had plenty to choose from this week, with nearly everything dropping like a rock, but the highly volatile coal miner Arch Coal (NYSE: ACI) took the cake with an 18.1% plunge. A huge two-day drop in gold prices, aided by China's first-quarter GDP, which dropped 20 basis-points from the sequential fourth-quarter, was enough reason for investors to be worried about all metals' short-term prospects. Arch Coal's growth plans entail a big boost in coal exports, so continued weakness overseas would be concerning.

Also in the news...
In the latest episode of "Dell's (DELL.DL) of our Lives," Dell's board of directors and Carl Icahn entered into an agreement whereby Icahn and his affiliates will cap their holdings at no more than 10% of its outstanding shares. Dell's board feels that if Icahn accumulated too many shares, it could hurt Icahn's proposed bid for the company, as well as give him and his affiliates too much voting interest power. I'm not really certain when this saga might end, but, as a shareholder myself, I still prefer the Blackstone Group offer more than the other two currently on the table.

Arkansas Best (ARCB 1.31%) acted like the trucking sectors' "worst" this week, with shares falling by 14.4%. The impetus appears to be comments made by JPMorgan analyst Thomas Wadewitz, who upgraded Old Dominion Freight Line to "overweight" from "neutral" earlier this week. In Wadewitz's analysis of Old Dominion Freight's peers, he noted that, without union concessions (which discussions are still ongoing), Arkansas Best may have to reduce capacity by 15%-20%. I admit its lack of union progress is a bit worrisome, but I'm certainly not going to let one analyst's opinion spoil my investment thesis.

Finally, Dendreon (NASDAQ: DNDN) shares continued to take it on the chin following Johnson & Johnson's first-quarter report. The reason is that J&J's prostate cancer drug, Zytiga, delivered 72% year-over-year growth, highlighted by 83% international sales growth. The faster that drugs like Zytiga penetrate overseas, the less of a chance that Dendreon's immunotherapy treatment, known as Provenge, will have to successfully enter the market. We should have a better idea of where Provenge sits in Europe with regard to gaining approval by year's end; but, in the meantime, it appears that more clouds are in the forecast.

We can do better
As an investor, having weeks like this is simply unavoidable. The thing to remember is that a week like this won't sum up your investing portfolio, as long as the investing thesis that made you buy all of your stocks remains intact. As of now, this contrarian and deep-value portfolio sits 12.8% below the performance of the S&P 500, but it's still very early in the "game." Over time, I do expect this portfolio of castaways to drastically outperform the broad-based index.

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