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

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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 why I chose these companies, then I encourage you to review my synopsis of 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

$960.22

(3%)

QLogic 

$11.46

86.39

$972.75

(1.7%)

Dendreon

$5.97

165.82

$492.49

(50.3%)

Dell 

$13.37

74.05

$1,026.33

3.7%

Staples 

$13.48

73.44

$1,083.97

9.5%

Arkansas Best 

$10.83

91.41

$2,335.53

135.9%

Arch Coal

$7.03

140.83

$647.82

(34.6%)

Skullcandy

$6.71

147.54

$938.35

(5.2%)

Orange

$11.64

85.05

$1,041.01

5.2%

Xerox

$8.16

121.32

$1,264.15

27.7%

Cash

  

$0.06

 

Dividends receivable

  

$116.04

 

Total commission

  

($100.00)

 

Original investment

  

$10,000.00

 

  

S&P 500 performance

   

12.7%

Performance relative to S&P 500

   

(3.9%)

Source: Yahoo! Finance, author's calculations.


This week's winner
I can't recall the last time I said this, but audio equipment specialist Skullcandy -- yes, Skullcandy -- topped the list with an impressive gain of 9.7% on the week. I wish I could say there was a lot of news behind this week's move, but nothing has hit the newswires since Barron's noted it as a possible turnaround candidate three weeks ago. With a new management team and a focus on reining in expenses, Skullcandy will hopefully surprise investors (and shareholders like me) in 2014.

This week's loser
We almost knew it was too good to be true with Dendreon topping last week's list of best performers. This week, Dendreon shares lost 8.3% and gave back roughly all of its previous week's bounce despite no company-specific news. If you recall, Dendreon shares bounced last week after the European Commission granted marketed authorization approval for Provenge, its metastatic prostate cancer vaccine, to be sold in all 28 European countries. While certainly positive news, Dendreon hasn't shown that it can market the vaccine effectively in the U.S., so concerns about its success in the highly competitive European markets remain at the forefront.

Also in the news...
Printing service and information technology specialist Xerox simply continues to hit home runs. This week, Xerox announced that it had signed a five-year contract with the Texas Department of Transportation to provide automated toll-booth services. The contract, worth about $100 million, will allow Xerox to establish toll facilities in Austin, which serves more than 8 million monthly toll transactions and manages more than 750,000 accounts. With 55% of its revenue (and growing) now coming from its high-margin IT and service operations, Xerox has distanced itself almost completely from its slow-growth printing history. Keep in mind, as well, that Xerox will go ex-dividend today as shareholders will be receiving a $0.0575 quarterly payment next month.

International telecommunication service provider Orange shrugged off a downgrade from research firm Zacks to underperform last Thursday to snake its way to its highest close since Sept. 27, 2012. Zacks dropped Orange to underperform from neutral because of slowing mobile service revenue in France (its largest market), tougher competition, and ongoing regulatory concerns. As for me, I see Orange making a strong push into emerging markets and capitalizing on recent M&A activity to unload non-core assets at a good value. As a shareholder in Orange, I see no reason to be disappointed in its recent strategy.

Finally, the entire coal sector, including Arch Coal , slipped after the U.S. Environmental Protection Agency proposed strict regulations for new coal plants meant to lower carbon emission moving forward. As my Foolish colleague Brian Pacampara describes, "Under the proposal, new large natural gas-fired turbines would need to meet an emission limit of 1,000 pounds of carbon dioxide per megawatt hour of generation, essentially making it impossible to build plants without the use of carbon capture and storage technology." Arch's senior VP of strategy and policy Deck Slone was quick to denounce the EPA's proposal as it would likely "arrest rather than spur technological advances." Slone also notes that the technology to enact such a proposal just isn't in place yet. I wouldn't let the EPA's suggestions roil you as a coal industry shareholder as there's just too much coal in the ground for the U.S. to abandon its usage cold turkey.

We can do better
As should be no surprise, the S&P 500 is now down five straight days and this portfolio of deep-value and contrarian stocks handily outperformed the S&P for the week. The underperformance gap has narrowed dramatically in recent months and should continue to turn in our favor as uncertainties over the looming government shutdown, the U.S. debt-ceiling debate, and the Federal Reserve's stance on QE3 remains on people's minds.

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, Dell, 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 Orange. 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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