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

By Sean Williams - Nov 29, 2013 at 3:15PM

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A year-long 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

$853.46

(13.8%)

QLogic 

$11.46

86.39

$1,059.14

7%

Dendreon

$5.97

165.82

$487.51

(50.8%)

American Eagle Outfitters 

$15.49

63.91

$1,028.95

3.9%

Staples

$13.48

73.44

$1,135.38

14.7%

Arkansas Best

$10.83

91.41

$2,983.62

201.4%

Arch Coal

$7.03

140.83

$570.36

(42.4%)

Skullcandy

$6.71

147.54

$885.24

(10.6%)

Orange

$11.64

85.05

$1,093.74

10.5%

Xerox

$8.16

121.32

$1,369.70

38.4%

Cash

   

$28.28

 

Dividends receivable

   

$150.12

 

Total commission

   

($100.00)

 

Original investment

   

$10,000.00

 

Total portfolio value

   

$11,645.50

16.5%

S&P 500 performance

     

20.3%

Performance relative to S&P 500

     

(3.8%)

Source: Yahoo! Finance, author's calculations, American Eagle Outfitters replaced Dell, which was taken private in October.

This week's winner
Don't call it a comeback, but topping the list of outperformers this week was struggling biopharmaceutical company Dendreon (NASDAQ: DNDN), which added 3.9% despite no company-specific news. The real allure of Dendreon in recent weeks is the possibility that it could put itself up for sale. Although heavy cost-cutting and a recent approval for metastatic prostate cancer drug Provenge could bring the company close to profitability, it's really the company's immunotherapy development platform that holds the appeal for a potential suitor.

This week's loser
On the other hand, coal miner Arch Coal (NYSE: ACI) had a rough week, ending lower by 3.6%. Part of that drop can be explained by the company going ex-dividend on Tuesday with the expectation that shareholders on record as of Friday, Nov. 29 will receive a $0.03 quarterly payout on Dec. 13. The other factor at work here is generally weak commodity pricing. As the stock market continues to move higher investors have moved away from all forms of hedged commodity investments, which have spilled over as far as the coal sector.

Also in the news...
The One Person's Trash Is Another Person's Treasure Portfolio has its first triple in the form of trucking company Arkansas Best (ARCB 5.91%). While a nice milestone, the real news here is that we also received our quarterly $0.03 dividend from the company on Friday, which has been added to the dividends receivable column above. Although this portfolio wasn't built for dividends, we've collected a yield of 1.5% and counting since inception, which is pretty impressive and more than negates our trading commissions. As for Arkansas Best, with its labor dispute now in the rearview mirror it's time to put the pedal to the medal!

Telecom service provider Orange (ORAN 1.29%) announced late Tuesday that it had found a buyer for its assets in the Dominican Republic, with private telecom firm Altice agreeing to purchase Orange's assets for a sum of $1.49 billion. For Orange, the deal allows the company to continue to focus on its core markets and emerging growth opportunities such as Sub-Saharan Africa, while giving it extra capital which it can use to pay down debt and buoy its impressive dividend.

Finally, Staples (SPLS) announced that it has expanded its existing ink and toner cartridge recycling program to give rewards members more options and more rewards. Staples has been a leader in ink cartridge recycling for years, but is looking for innovative ways to reduce costs and improve customer loyalty. Expanding its rewards and recycling program may not seem like much, but it's the first step in doing so, especially considering that it has a huge opportunity to pick up domestic market share with Office Depot and OfficeMax now officially merged and looking to consolidate their operations.

We can do better
It was a pretty tame week for this portfolio of underappreciated and contrarian plays, all things considered, with nothing moving up or down more than 3.9%. Given the S&P 500's unstoppable run higher it's been difficult for this group of contrarian plays to keep up, but thank to Arkansas Best and Xerox, we're well within striking distance of eclipsing the iconic index. Although time is finally starting to wane on this experiment, I still believe that even the slightest downtrend could shoot this portfolio of undervalued plays well past the S&P 500.

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

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Stocks Mentioned

ArcBest Corporation Stock Quote
ArcBest Corporation
ARCB
$71.48 (5.91%) $3.99
Orange Stock Quote
Orange
ORAN
$11.79 (1.29%) $0.15
Staples, Inc. Stock Quote
Staples, Inc.
SPLS

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

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