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 my choices, 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 |
$867.72 |
(12.4%) |
|
QLogic |
$11.46 |
86.39 |
$1,021.99 |
3.2% |
|
Dendreon |
$5.97 |
165.82 |
$495.80 |
(49.9%) |
|
American Eagle Outfitters |
$15.49 |
63.91 |
$920.30 |
(7%) |
|
Staples |
$13.48 |
73.44 |
$1,166.96 |
17.9% |
|
Arkansas Best |
$10.83 |
91.41 |
$3,078.69 |
211% |
|
Arch Coal |
$7.03 |
140.83 |
$626.69 |
(36.7%) |
|
Skullcandy |
$6.71 |
147.54 |
$1,063.76 |
7.5% |
|
Orange |
$11.64 |
85.05 |
$1,050.37 |
6.1% |
|
Xerox |
$8.16 |
121.32 |
$1,476.46 |
49.1% |
|
Cash |
$28.28 | |||
|
Dividends receivable |
$172.15 | |||
|
Total commission |
($100.00) | |||
|
Original investment |
$10,000.00 | |||
|
Total portfolio value |
$11,969.17 |
19.7% | ||
|
S&P 500 performance |
23.1% | |||
|
Performance relative to S&P 500 |
(3.4%) |
Source: Yahoo! Finance, author's calculations. American Eagle Outfitters replaced Dell, which was taken private in October.
This week's winner
Leading all gainers for a second consecutive week is audio accessories manufacturer Skullcandy (SKUL +0.00%), which advanced 7.3% despite no company-specific news. The move higher is a continuation of last week's jump, which was caused by an upgrade from Roth Capital that also came with a price target increase to $7.50 from $5.50. Skullcandy is revamping its operations through cost-cutting efforts designed to improve efficiency by focusing on its core $30-$50 price point, and through fresh ideas with the appointment of Hoby Darling as CEO last March. As a shareholder myself, I like the direction the company is headed and see no reason to sell now.
This week's loser
In the doghouse last week -- in a truly fitting way for this laggard to end the year -- is biopharmaceutical company Dendreon (NASDAQ: DNDN), which dipped 10.7% despite a lack of news. The sell-off was most likely tax-related as investors offset their losers, such as Dendreon, against what should have been plenty of gainers this year. Dendreon is facing a make-or-break year in 2014, with its immunotherapy vaccine for treating metastatic prostate cancer, Provenge, now approved in Europe. Given this and its second steep restructuring over the past two years, if Dendreon can't dramatically shrink its loss by the end of the year it may be in serious trouble.
Also in the news...
Despite yet another holiday-shortened week, dividends were the biggest story with this portfolio, which gladly received one more quarterly payout before year's end and another company going ex-dividend.
On Monday, teen retailer American Eagle Outfitters (AEO +1.30%), which replaced Dell in October when the PC maker was taken private, paid out $0.125 per share to shareholders on record as of Dec. 20. This might sound meager, but American Eagle is paying out a Treasury-thumping 3.5% yield that is bound to attract income-seeking investors to this stock. American Eagle is also among the best in the industry when it comes to managing inventory, growing its direct-to-consumer business, and properly pricing merchandise to drive foot traffic.
Printing and information technology-services provider Xerox (XRX +0.00%) also made headlines by going ex-dividend on Friday, removing $0.0575 from its share price which will be paid Jan. 31 to shareholders who were on record as of Dec. 31. Xerox definitely took heat for its latest quarterly guidance which warned of another restructuring that would negatively impact its bottom line. However, it's also been a prime beneficiary of the Obamacare rollout and is generating more than enough cash flow to sustain, and even grow, its quarterly payout.
Finally, worth watching over the next couple weeks is coal miner Arch Coal (NYSE: ACI), which could be on the precipice of a big rebound thanks to rapidly declining oil and natural gas inventories. Some of this decline can be blamed on the time of the year when more fuel sources are used to heat homes and businesses. However, the precipitous decline in these products could also boost oil and natural gas prices and clear the way for coal to swoop back in as a favorite electricity generation source for utilities.
We can do better
While this portfolio of contrarian and deeply discounted companies gained value for the week, the broad-based S&P 500 shuffled even higher, ending the year at yet another record close. This contrarian experiment is getting down to its final couple of weeks, but I haven't lost hope that with even the slightest pullback this portfolio could easily vault past the S&P 500.
Check back next week for the latest update on this portfolio and its 10 components.
