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:
- Exelon
- QLogic
- Dendreon
- Dell/American Eagle Outfitters
- Staples
- Arkansas Best
- Arch Coal
- Skullcandy
- Orange
- Xerox
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 |
$919.04 |
(7.2%) |
|
QLogic |
$11.46 |
86.39 |
$1,069.51 |
8% |
|
Dendreon |
$5.97 |
165.82 |
$406.26 |
(59%) |
|
American Eagle Outfitters |
$15.49 |
63.91 |
$936.28 |
(5.4%) |
|
Staples |
$13.48 |
73.44 |
$1,178.71 |
19.1% |
|
Arkansas Best |
$10.83 |
91.41 |
$2,425.11 |
145% |
|
Arch Coal |
$7.03 |
140.83 |
$616.84 |
(37.7%) |
|
Skullcandy |
$6.71 |
147.54 |
$914.75 |
(7.6%) |
|
Orange |
$11.64 |
85.05 |
$1,119.26 |
13.1% |
|
Xerox |
$8.16 |
121.32 |
$1,250.81 |
26.3% |
|
Cash |
$28.28 | |||
|
Dividends receivable |
$147.38 | |||
|
Total commission |
($100.00) | |||
|
Original investment |
$10,000.00 | |||
|
Total portfolio value |
$11,012.23 |
10.1% | ||
|
S&P 500 performance |
17.9% | |||
|
Performance relative to S&P 500 |
(7.8%) |
Source: Yahoo! Finance, author's calculations. American Eagle Outfitters replaced Dell, which was taken private in October.
This week's winner
Leading all companies within the portfolio this week with a gain of 5% was information technology and printing services specialist Xerox (XRX +0.00%). Although there was no company-specific news this week, we did collect our quarterly $0.0575 per-share dividend last Thursday, and it has been added to the "dividends receivable" column. Xerox was smacked around a bit two weeks ago after it delivered a disappointing fourth-quarter outlook riddled with more restructuring charges. However, I believe investors are slowly coming around to the idea that Xerox is becoming an integral part of our reformed health care system under Obamacare given its ties to payment processing and state-run exchange development. I'm looking for Xerox to continue its march higher.
This week's loser
On the flip side is trucking company Arkansas Best (ABFS 1.37%), which is often the portfolio's top performer, not its worst. Shares fell 6.7% on the week despite the company announcing that its labor agreement had been ratified and would take effect as of this past Sunday, Nov. 3. This labor agreement, which covers employees for the next five years, will allow Arkansas Best to stay competitive on pricing and should deliver immediate gains to the company's bottom-line results. It could have just been a matter of "buy the rumor, sell the news," but I remain quite positive on Arkansas Best's three-to-five year outlook following this ratification.
Also in the news...
You just sort of knew that the good times weren't meant to last for biotech company Dendreon (NASDAQ: DNDN) despite the possibility that it could put itself up for sale. Yesterday, research firm CRT Capital initiated coverage on the company with a "fair value" rating. That certainly goes to show how far the once-mighty Dendreon has fallen, given that it's down more than 60% from its highs this year and research firms still see little upside. Until Dendreon can demonstrate organic growth for its lead metastatic prostate cancer drug, Provenge, or monetize its technology platform through a sale, it will probably continue to struggle.
Office supply superstore Staples (SPLS +0.00%) found out late last week that U.S. antitrust regulators had approved the merger of rivals Office Depot and OfficeMax. This was not much of a surprise, but it now clears the way for the two retailers to begin combining their operations and closing underperforming locations. I fully anticipate that these store closures will allow Staples to pick up displaced office supply customers and dramatically boost its domestic operations. When this is coupled with Staples' own downsizing, 2014 is looking like it could be a surprisingly good year for the company.
Finally, it was a sour debut this week for teen retailer American Eagle Outfitters (NYSE: AEO), which was clubbed by about 5% after rival Abercrombie & Fitch reported that comparable-store sales for its latest quarter decreased by a whopping 14%. Abercrombie & Fitch also warned that it doesn't expect sales to improve much and lowered its full-year earnings-per-share forecast. That could be bad news for American Eagle, as it's essentially courting a similar customer, but I suspect the retailer is doing a better job with pricing and inventory than A&F, so its results shouldn't be nearly as bad.
We can do better
This group of deep-discount and contrarian companies lost a little bit of ground over the past week despite modest gains in the S&P 500, due mostly to the drop in highest-weighted Arkansas Best and the bittersweet debut of American Eagle Outfitters. Overall, though, the vast majority of companies in this portfolio still appear undervalued in my eyes and could be primed to add to investors' portfolios and pocketbooks in the future.
Check back next week for the latest update on this portfolio and its 10 components.
