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

$1,020.10

3%

QLogic 

$11.46

86.39

$1,040.14

5.1%

Dendreon 

$5.97

165.82

$941.86

(4.9%)

Dell

$13.37

74.05

$1,058.92

7%

Staples

$13.48

73.44

$997.32

0.7%

Arkansas Best

$10.83

91.41

$1,120.69

13.2%

Arch Coal 

$7.03

140.83

$723.87

(26.9%)

Skullcandy

$6.71

147.54

$777.54

(21.5%)

France Telecom 

$11.64

85.05

$876.02

(11.5%)

Xerox 

$8.16

121.32

$1,042.14

5.3%

Cash

   

$0.06

 

Dividends Receivable

   

$16.63

 

Total commission

   

($100.00)

 

Original investment

   

$10,000.00

 

   

S&P 500 performance

     

3.5%

Performance relative to S&P 500

     

(7.3%)

Source: Yahoo! Finance.


This week's winner
Flip-flopping spots, last week's biggest loser, Staples , was this week's biggest gainer, up 10%. Part of its gain can be attributed to a rebound from last week's big loss, but also because of website MacRumors reporting that Staples is set to begin selling Apple's iPhone, iPad, and Mac computers by late March. If this is true, it'd be a big win for Staples, which would benefit greatly from the increase in foot traffic that Apple products bring to retailers. Combined with the gains expected from the Office Depot purchase of OfficeMax and Staples could really surprise Wall Street in the latter half of 2013.

This week's loser
As I said earlier, flip-flopping spots, audio accessories maker Skullcandy took the cake for this week's biggest flop, falling better than 20% after topping revenue forecasts in the fourth quarter but widely missing EPS projections for the first-quarter by forecasting a loss of $0.25-$0.30 versus expectations for a profit of $0.05 per share. However, seeing the good in the bad, Skullcandy's co-founder is now back at the helm and is focused on improving operating efficiency. I can't help feeling that with the company valued this inexpensively, it will receive a potential takeover offer.

Also in the news ...
As you may have guessed, Dell is back in the news as the drama between it and activist investors Carl Icahn continues to escalate. Dell agreed earlier this week to give Icahn a confidential look at Dell's books which only fueled investors' fire that a higher bid may be sought. Icahn has stated that if Dell is unable to find a better bid, it should take on additional debt and pay out a special $9 cash dividend to shareholders. I can't say the idea thrills me as a shareholder, but I could see $13.65 plus a $1 or $2 dividend being enough to secure more votes for the leveraged buyout.

If you glanced over the portfolio today, you'll notice a fancy new column known as "dividends receivable." That $16.63 in cash would be to indicate that we've received our $0.525 stake from Exelon . The company may have lowered its payout to more reasonable levels, but it'll still pay out approximately 4% annually while giving the company ample cash to reinvest in solar, wind, and other alternative-energy programs that will help lower its long-term costs.

Finally, I wanted to note the outperformance in trucking company Arkansas Best over these past couple of weeks. Most notably, the stock popped nearly 5% yesterday after stronger-than-expected retail sales figures, which rose 1.1% from January when economists expected only 0.5%. Although some higher-end goods aren't selling as well as economists had expected, a strong U.S. retail sales figure is going to keep trucking and logistics companies busy. It's a bit disconcerting that fuel prices are already rapidly rising, but ABF looks poised to continue to rebound because of its tight cost controls.

We can do better
It was another week of gains for the portfolio -- albeit small -- but, unfortunately, the S&P 500 yet again outperformed my value and contrarian portfolio. Obviously, the market can't go up forever; and when it does stop, this portfolio is primed to outperform with deeply discounted companies with loads of cash on hand.

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

The light at the end of the tunnel?
As the nation moves increasingly toward clean energy, Exelon is perfectly positioned to capitalize on having the largest nuclear fleet in North America. This strength, combined with an increased focus on balance sheet health and its recent merger with Constellation, places Exelon and its resized dividend on a short list of the top utilities. To determine whether Exelon is a good long-term fit for your portfolio, you're invited to check out The Motley Fool's premium research report on the company. Simply click here now for instant access.

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 Apple, Dendreon, France Telecom, Skullcandy, and Staples and recommends Apple, Exelon, and France Telecom. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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