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

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:

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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

$864.55

(12.7%)

Qlogic

$11.46

86.39

$997.80

0.8%

Dendreon 

$5.97

165.82

$555.50

(43.9%)

American Eagle Outfitters

$15.49

63.91

$931.17

(5.9%)

Staples

$13.48

73.44

$1,168.43

18%

Arkansas Best

$10.83

91.41

$3,113.42

214.5%

Arch Coal

$7.03

140.83

$632.33

(36.1%)

Skullcandy

$6.71

147.54

$991.47

0.1%

Orange

$11.64

85.05

$1,024.85

3.5%

Xerox

$8.16

121.32

$1,477.68

49.3%

Cash

   

$28.28

 

Dividends receivable

   

$164.16

 

Total commission

   

($100.00)

 

Original investment

   

$10,000.00

 

   

S&P 500 performance

     

22.1%

Performance relative to S&P 500

     

(2.6%)

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


This week's winner
Although it was a shortened week thanks to the Christmas holiday and the half-day of trading on Christmas Eve, audio-accessories maker Skullcandy exploded up by 13.3% on the week after it received an upgrade from Roth Capital analyst Dave King. King bumped up his price target on Skullcandy by $2 to $7.50 and placed a "buy" rating on the company, which is up from "neutral." King anticipates that new product offerings from Skullcandy, as well as management's aggressive changes, should begin to deliver bottom-line results very soon. As a shareholder myself, I couldn't agree more, and I definitely like the path new CEO Hoby Darling has taken the company down thus far.

This week's loser
On the flip side, the struggle continued for electric utility Exelon , which shed another 2.6% on the week despite a lack of company-specific news. Two factors appeared to work against Exelon this week. First, the market has been moving almost vertically higher, which is bad news for traditionally defensive names like Exelon and other electric utilities, which get left in the dust. The other concern for Exelon is that natural-gas prices have been rising precipitously of late, hitting a six-month high this week. Many electric utilities like Exelon have shifted away from coal and toward natural-gas-powered facilities in recent years, and that move is now costing a pretty penny more than it did last year. Make no mistake: I still feel Exelon is brutally undervalued here. But I also understand why investors have pushed it lower recently, too.

Also in the news...
Sticking with the theme of analyst actions, overseas telecom service provider Orange was upgraded by research service Zacks to "outperform" on Tuesday. In an echo of what I've been saying for nearly a year now, Zacks boosted its rating on the assumption that its wireless infrastructure improvements in France, as well as its higher-growth network opportunities in Africa and the Middle East, will deliver bottom-line growth and a positive long-term outlook. Let's also not forget that a nearly $0.40-per-share dividend is also on the way very shortly.

After announcing the sale of part of its engineering and development business to 3D Systems last week, Xerox  went on the offensive and announced the acquisition of German customer-care service provider Invoco. Xerox will utilize Invoco's expertise as it looks to expand its business process outsourcing capabilities to overseas and emerging markets. This move is consistent with Xerox's push to derive more than two-thirds of its revenue from IT-services within five years and continue its push away from the highly commoditized printing business.

Finally, office supply superstore Staples went ex-dividend on Tuesday in anticipation of the $0.12 dividend shareholders will be receiving as of Jan. 16. Staples' current yield of 3.1% is actually impressive, considering how weak the office supply business has been since the recession. Although Staples' earnings haven't been anything to write home about, its ability to nab displaced customers from the Office Depot-OfficeMax merger should yield surprisingly good results in 2014 and could make the company a dark horse rebound candidate.

We can do better
The sands of time are running out on this year-long experiment, but this portfolio is showing dramatic resiliency over the past couple of weeks and now sits just 2.6% below the performance of the S&P 500. If Arkansas Best and Xerox have anything left in the tank, it wouldn't be too difficult to surpass the S&P 500 when all is said and done.

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

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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, Skullcandy, and Orange, 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, and recommends 3D Systems and Orange, and has the following options: short January 2014 $20 puts on 3D Systems. It also owns shares of Staples and recommends Exelon. 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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