In November 2012, 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 |
$851.24 |
(14%) |
|
Qlogic |
$11.46 |
86.39 |
$1,019.40 |
3% |
|
Dendreon |
$5.97 |
165.82 |
$472.59 |
(52.3%) |
|
American Eagle Outfitters |
$15.49 |
63.91 |
$960.57 |
(3%) |
|
Staples |
$13.48 |
73.44 |
$1,146.40 |
15.8% |
|
Arkansas Best |
$10.83 |
91.41 |
$3,046.70 |
207.8% |
|
Arch Coal |
$7.03 |
140.83 |
$585.85 |
(40.8%) |
|
Skullcandy |
$6.71 |
147.54 |
$1,158.19 |
17% |
|
Orange |
$11.64 |
85.05 |
$1,058.02 |
6.9% |
|
Xerox |
$8.16 |
121.32 |
$1,465.55 |
48% |
|
Cash |
$28.28 | |||
|
Dividends receivable |
$206.00 | |||
|
Total commission |
($100.00) | |||
|
Original investment |
$10,000.00 | |||
|
Total portfolio value |
$11,998.79 |
20% | ||
|
S&P 500 performance |
22.3% | |||
|
Performance relative to S&P 500 |
(2.3%) |
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 trend, but audio accessories maker Skullcandy (SKUL +0.00%) topped the list of advancers for a third straight week, gaining 8.9% after presenting new products at the Consumer Electronics Show and announcing a strategic relationship with Toshiba. Under the deal, Toshiba will license the Skullcandy trademark for distribution of Toshiba laptops in exchange for Skullcandy's audio expertise. It may not seem like a big deal because Toshiba isn't the biggest name when it comes to laptops, but any sort of recurring revenue is a godsend for Skullcandy. As a shareholder I've been very pleased with Skullcandy's progress over the past month.
This week's loser
On the other end of the spectrum was volatile coal miner Arch Coal (NYSE: ACI), which dipped 6.5% on the week as the entire sector was hit by weaker coal prices. Arch recently refinanced its debt, so it's counting on a rebound in coal prices, as well as improving demand domestically and in China, to continue to fuel its recovery. Although coal prices are down in recent weeks, we could see a surge in demand thanks to the cold spell known as the polar vortex that blanketed much of the United States. Last year was definitely one for Arch shareholders to forget, but I predict 2014 which be much kinder to them.
Also in the news...
Does anyone around here like money... because I sure do! Earlier this week international telecom service provider Orange (ORAN +2.33%) paid out $0.398 per share, in what amounts to a better than 5% dividend yield from fiscal 2013. I've owned Orange in my own portfolio for more than a year and am perfectly content collecting these premium yields. Furthermore, the company's divestiture of noncore assets (e.g., Dominican Republic operations) and focus on infrastructure improvements in its core market of France, while also pushing into sub-Saharan Africa, encourages me that Orange is still a growth story.
While Arch Coal may benefit from the polar vortex's death grip on more than half of the United States, the cold snap could be more bad news for for retailers like American Eagle Outfitters (AEO 6.95%) which are going to see a decline in foot traffic during an already historically slow month. Citigroup analyst Oliver Chen, for example, anticipates that American Eagle Outfitters could have as much as 1% lopped off fourth-quarter sales because of the recent snowstorm and cold spell. I'm personally not too concerned about the short-term effects of predicting the weather and would encourage investors to focus on American Eagle's superior inventory management and dividend history.
Finally, electric utility Exelon (EXC +0.64%) made news in three unique ways. First, Exelon shares hit their lowest levels since 2003, pushing down as investors punished the utility giant for its high nuclear exposure relative to other alternative energy. Second, Exelon announced that its Chicago-area subsidiary, ComEd, had priced $650 million worth of bonds that would be used to refinance and/or pay off a number of outstanding loans. Lastly, Exelon could find itself a big beneficiary from this winter storm (yes ... the storm again!) with electric usage soaring in order to heat homes from this wintery blast.
We can do better
It certainly didn't feel like a great start to the year, but this contrarian and deep-discount portfolio did precisely what it needed to do and moved higher as the S&P 500 moved lower. This portfolio was specifically geared to outperform in down and sideways markets, so the past year-and-change where we've gone straight up has been a bit of a struggle. With a few weeks remaining in this experiment I still anticipate that this portfolio can close the 2.3% gap and surpass the S&P 500.
Check back next week for the latest update on this portfolio and its 10 components.
