Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

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

By Sean Williams - Oct 24, 2013 at 4:23PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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

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 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 could 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

$886.09

(10.5%)

QLogic

$11.46

86.39

$967.57

(2.3%)

Dendreon

$5.97

165.82

$373.10

(62.3%)

Dell

$13.37

74.05

$1,024.85

3.5%

Staples

$13.48

73.44

$1,156.68

16.8%

Arkansas Best

$10.83

91.41

$2,487.27

151.2%

Arch Coal 

$7.03

140.83

$574.59

(42%)

Skullcandy 

$6.71

147.54

$914.75

(7.6%)

Orange

$11.64

85.05

$1,177.94

19%

Xerox 

$8.16

121.32

$1,301.76

31.5%

Cash

   

$0.06

 

Dividends receivable

   

$130.77

 

Total commission

   

($100.00)

 

Original investment

   

$10,000.00

 

Total portfolio value

   

$10,995.43

10%

S&P 500 performance

     

16.3%

Performance relative to S&P 500

     

(6.3%)

Source: Yahoo! Finance; author's calculations.

This week's winner
Completely wiping away its tumble from two weeks ago, trucking company Arkansas Best ( ARCB 3.95% ) surged 11.3% despite a lack of company news this week. If you recall, nearly all of Arkansas Best's labor unions had approved its new multiyear labor agreement, save for one that was threatening to strike. This labor agreement is a key component to keeping subsidiary ABF Freight System competitive on a cost basis within the industry. With high levels of short interest built up in the stock, it appears that a squeeze was the main culprit this week.

This week's loser
As should come as no surprise by now, biotech disappointment Dendreon (NASDAQ: DNDN) was again the worst performer this week, shedding another 17%, most notably after rival Medivation and its marketing partner Astellas Pharma reported positive results from their PREVAIL trial for Xtandi. Currently, Xtandi is only approved to treat prostate cancer patients after they've been treated with chemotherapy. The PREVAIL trial tested Xtandi's use in a pre-chemo setting, and the results were quite encouraging. This is yet another blow for Dendreon's Provenge, which didn't perform particularly well in a pre-chemo setting, and puts it potentially further behind its peers.

Also in the news...
The Dell ( DELL.DL ) drama has officially entered its final chapter, with the company paying out its third-quarter dividend of $0.08 to shareholders this past week and declaring its special dividend of $0.13 per share, payable to shareholders immediately upon Dell's being taken private (which should be within the next week). With Dell going private, you can look for a new company to be added to this portfolio shortly, with the profits earned from our Dell "purchase" being banked in the cash section.

Dell wasn't the only company handing out its quarterly stipend over the last week. We also collected a $0.12 per-share dividend from office supply superstore Staples ( SPLS ) last Thursday. Staples' turnaround certainly has been challenging, but the merging of its peers OfficeMax and Office Depot should give it plenty of domestic opportunity to acquire customers as store closures from the merger displaces shoppers. Given its heavy emphasis on direct-to-consumer business and the fact that it's taking its fight directly to Amazon.com by matching prices, I feel Staples could surprise more than a few investors this holiday season.

Finally, overseas telecom service provider Orange ( ORAN -1.78% ) reported its third-quarter results. For the most part, the report was rather ho-hum, with revenue falling 4% year over year but dropping only 2.4% if you exclude regulatory costs in France. Revenue in France and Orange's enterprise segment were the weakest, falling nearly 5% and more than 7%, respectively, while revenue growth in Spain, Africa, and the Middle East helped the most. Overall, Orange had 232.5 million subscribers by quarter's end -- a 2.1% increase over the previous year -- and it's seeing a nice boost in broadband subscribers. Most importantly, it has generated 6 billion euro in cash flow so far this year and is well on its way to achieving its target of 7 billion euro in cash flow generation for the year. That'll be a key component to keeping the company's dividend yield around 10%.

We can do better
There's little denying that Arkansas Best was a big help in aiding this portfolio's outperformance this week. But this is a portfolio of deeply discounted, contrarian names, and the fact that the market hasn't stopped going up has certainly been detrimental to its success. However, it wouldn't take more than a minor correction, or perhaps even one or two rallies from companies within this portfolio, to turn things around and put us decisively ahead of the S&P 500. I've still got three months left to show you the value of contrarian thinking, and I firmly believe it'll still outpace the S&P 500 when all is said and done.

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

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Dell Technologies Inc. Stock Quote
Dell Technologies Inc.
DELL.DL
ArcBest Corporation Stock Quote
ArcBest Corporation
ARCB
$103.78 (3.95%) $3.94
Orange Stock Quote
Orange
ORAN
$10.47 (-1.78%) $0.19
Staples, Inc. Stock Quote
Staples, Inc.
SPLS

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
634%
 
S&P 500 Returns
141%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/02/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.