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

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 investors that deep-value investing and contrarian thinking can actually be a very 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 felt fit this bill and would expect to 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 on 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

$959.59

(3.1%)

QLogic

$11.46

86.39

$1,013.35

2.4%

Dendreon

$5.97

165.82

$983.31

(0.7%)

Dell

$13.37

74.05

$1,024.11

3.4%

Staples

$13.48

73.44

$998.78

0.9%

Arkansas Best

$10.83

91.41

$1,040.25

5.1%

Arch Coal

$7.03

140.83

$784.42

(20.8%)

Skullcandy

$6.71

147.54

$957.53

(3.3%)

France Telecom

$11.64

85.05

$857.30

(13.6%)

Xerox

$8.16

121.32

$953.58

(3.7%)

Cash

   

$0.06

 

Total commission

   

($100.00)

 

Original investment

   

$10,000.00

 

   

S&P 500 performance

     

0.7%

Performance relative
to S&P 500

     

(5%)

Source: Yahoo! Finance, author's calculations.


This week's winner
The standout this week was last week's biggest loser: Staples . The office supply giant advanced nearly 6% over the past week on the heels of the announced buyout of OfficeMax by Office Depot. The logic behind rallying because its two largest rivals are combining might be a bit odd on the surface, but Staples should benefit from the store closures associated with the synergy of the No. 2 and No. 3 in the office supply space, as well as any integration issues that the two encounter.

This week's loser
The weakest link this week was Dendreon , falling more than 7%. Dendreon was downgraded last week to "sell" from "hold" by Maxim Group, which had a price target of just $4 set on the biotech company -- more than 35% lower than where the stock was trading at the time. With Dendreon having now given up all of its early gains, investors will be counting on the company's cost-cutting measures as well as its European results to drive stock gains in the second half of the year

Also in the news...
While Dell  is still trying to woo shareholders to accept the terms of its orchestrated leveraged buyout, it reported its fourth-quarter results. Consolidated revenue fell 11% year over year, with its consumer segment showing a decline of 24%, while profits dipped 30%. However, adjusted EPS of $0.40 topped Wall Street's estimates by $0.01 and enterprise networking again demonstrated strong growth of 18%. Most important, Dell generated another $1.4 billion in cash flow for the quarter, $3.3 billion for the year, and more than $6 billion in net cash. Even if this buyout doesn't go through, Dell's cash flow and cash balance should net the company a loftier valuation. 

France Telecom , a perpetual underperformer thus far, is scheduled to report its results on Thursday. Although estimates for Europe are absolutely dire -- and they deserve to be with the implementation of so many austerity measures at once -- investors seem to forget that France Telecom's Orange mobile business extends beyond Europe into rapidly growing Africa. If France Telecom can stand by its dividend payout, which currently would be for a minimum yield of 10.5% as of this writing, and report solid emerging market growth, I feel a sustainable rally will ensue.

Finally, Zack's noted that two tech research firms, Dell'Oro Group and Crehan Research, have concluded that QLogic   remains the market-share leader in Fibre Channel adapters. With 53.4% of the market share, QLogic sits ahead of its closest competitor (Emulex) by 11.4%.The report did show that QLogic's lead over Emulex declined year over year, but it nonetheless places QLogic in great shape with regard to taking advantage of increased spending on network infrastructure.

We can do better
I'm sorry to say it was another sad week for my deep-value and contrarian portfolio, which continues to move contrary to the way I'd prefer. Both the S&P 500 and the portfolio lost value this week; however, the One Person's Trash portfolio dipped considerably more. The portfolio is now sitting lower by 5% relative to the S&P 500, but it's still early and this isn't a sprint. Given time, these names should outperform the high-flying S&P 500.

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

Resurgence, or dead cat bounce?
Shares of Dendreon have surged in recent months, with the stock gaining new life from the depths of late 2012. Has the company really solved its underlying problems, or are investors setting themselves up for more disappointment? Our new premium research report on Dendreon answers these questions, and many more, while also outlining just how Dendreon intends to regain its former glory. Claim your copy, and a year of free analyst updates, by clicking here now.

The article One Person's Trash Is Another Person's Treasure Portfolio originally appeared on Fool.com.

Fool contributor Sean Williams owns shares of QLogic, Dell, Skullcandy, and France Telecom, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Dendreon, Staples, and France Telecom. Motley Fool newsletter services have recommended buying shares of France Telecom. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


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