Last November, 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 thought 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 |
$1,131.29 |
14.3% |
|
QLogic |
$11.46 |
86.39 |
$851.81 |
(14%) |
|
Dendreon |
$5.97 |
165.82 |
$785.99 |
(20.6%) |
|
Dell |
$13.37 |
74.05 |
$979.68 |
(1%) |
|
Staples |
$13.48 |
73.44 |
$1,023.75 |
3.4% |
|
Arkansas Best |
$10.83 |
91.41 |
$1,403.14 |
41.7% |
|
Arch Coal |
$7.03 |
140.83 |
$735.13 |
(25.7%) |
|
Skullcandy |
$6.71 |
147.54 |
$759.83 |
(23.2%) |
|
France Telecom |
$11.64 |
85.05 |
$909.18 |
(8.2%) |
|
Xerox |
$8.16 |
121.32 |
$1,067.62 |
7.8% |
|
Cash |
$0.06 | |||
|
Dividends receivable |
$42.56 | |||
|
Total commission |
($100.00) | |||
|
Original investment |
$10,000.00 | |||
|
Total portfolio value |
$9,690.04 |
(3.1%) | ||
|
S&P 500 performance |
8.7% | |||
|
Performance relative to S&P 500 |
(12.8%) |
Source: Yahoo! Finance.
This week's winner
There was absolutely no question that Arkansas Best's (ABFS +0.80%) 58.2% gain over the past week would wind up taking the top honors. The reason for the huge rally relates to a tentative agreement reached between its subsidiary, ABF Freight Systems, and the Teamsters union. Contract negotiations between the two parties have been going on for far too long, and are one of the main reasons why Arkansas Best's costs have been running higher than many of its peers. With this deal now in place, union members likely don't have to worry about job cuts, and Arkansas Best has all the tools necessary to quickly return to profitability. Deutsche Bank agreed, upgrading the stock to buy from hold, with much of the company's uncertainty now removed.
This week's loser
On the flip side, investors certainly didn't receive networking equipment maker QLogic's (QLGC +0.00%) fourth-quarter report with open arms, sending shares down 5.1% on the week. I'm actually a bit surprised at the move lower, because the report itself was pretty solid with the company topping EPS estimates by $0.01, even as revenue declined 13% year over year. Following last quarters' positive pre-announcement, and the recent strength in fiber optic companies, I believe the negativity is because investors were expecting more. But, fear not, as QLogic still boasts an incredible cash pile of $455.5 million (equal to 51% of its market value as of this writing), and continues to deliver decent profits.
Also in the news...
Shareholders in audio accessories maker Skullcandy (SKUL +0.00%) -- and I am one -- can breathe a bit easier after the company reported results for what was expected to be a dismal first quarter. Overall, revenue fell 30%, to $37.1 million, as the company lost an adjusted $0.23 per share. Revenue missed the mark by about $600,000, but the loss was $0.04 narrower than forecast by the Street. The key is that the company left its strategy and outlook unchanged moving forward. With a new CEO at the helm, and international sales growing by 18% in the most recent quarter, there's still plenty of hope that Skullcandy will turn things around.
In this week's episode of "Dell's (DELL +0.00%) of Our Lives," we learned, according to a report from The Wall Street Journal, that activist investor Carl Icahn, and Dell's second-largest shareholder, Southeastern Asset Management, could collaborate together to pick a new group of directors to Dell's board. The skinny here is that the Dell buyout is going to be a long, drawn-out battle between numerous vocal investors, and current CEO Michael Dell, who wants to get his company away from public scrutiny. I'm still holding my shares, but expecting a topsy-turvy ride.
Finally, Arch Coal (NYSE: ACI) had a good week following smaller-than-expected losses from rivals Alpha Natural Resources and Walter Energy. Natural gas prices have quietly doubled over the past year, which has drastically slowed the pace by which electric utilities have been transitioning to nat-gas powered plants. In addition, growth prospects are stabilizing in China, which should yield price and demand stabilization for metallurgical coal producers. Coal companies could wind up being quite the steal in the second-half of the year if things keep improving.
We can do better
It was certainly a good week, indeed, with Arkansas Best leading my contrarian and deep value portfolio to a better than 7% gain. I believe this was only the second week since the end of January that this portfolio has topped the performance of the S&P 500. We gained back more than two full percentage points this week, and I'll be expecting continued strength from these deep value plays moving forward.
Check back next week for the latest update on this portfolio and its 10 components.
