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 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:
S&P 500 performance
Performance relative to S&P 500
This week's winner
France Telecom was off to the races this week, gaining better than 7%, just two weeks after Zacks issued a report that upgraded its rating on the service provider from "underperform" to "neutral" with an $11 price target. As usual, I wouldn't pay too much attention to the day-to-day analyst rumblings. Instead, I'd pay closer attention to management's comments made Tuesday that the company's Orange business unit is on pace to generate roughly 500 million euro in revenue from cloud computing by 2015, or the report from The Wall Street Journal that Yahoo! is in talks to purchase up to 75% of France Telecom's Dailymotion.
This week's loser
Bringing up the caboose in this generally positive week was biotechnology company Dendreon , which dove more than 7%. It appears the impetus for the fall was a settlement reached just days ago regarding a class action lawsuit brought against the company for making false or misleading statements to investors regarding Provenge between April 29, 2010, and Aug. 3, 2011. The settlement totaled $40 million, but Dendreon's insurers are footing the bill for all but $2 million of that amount. Investors never like to see settlements work against a company, but with this dark cloud now out of the way, perhaps Dendreon can focus its efforts on reducing costs and getting Provenge approved in Europe.
Also in the news...
Audio accessories maker Skullcandy bounced back a bit this week after announcing the hiring of Hoby Darling as its new CEO. Darling has been the general manager of Nike's Nike+ digital sports unit and should give the company a fresh overhaul with global appeal. I'm personally a bit stunned that interim CEO Rick Alden didn't stick around longer in an attempt to turn around the company he founded, but I like the replacement that was chosen. Apparently investors did as well, with Skullcandy up nearly 6% on the week.
You may not have noticed, but that dividends receivable column also got a bit fatter this week with Arch Coal paying out a $0.03 dividend per share last Friday. Arch's 7% move higher on the week could be attributed to a report released by research firm Research Driven Investing, which noted that China's coal imports are up 34% through the first two months of 2013. As I've been saying, Arch is relying on export contracts in the West and Gulf Coasts to drive growth, which would play perfectly into China's growing needs.
Finally -- and don't act like you didn't know this was coming -- Dell remains front-and-center in the news with Friday acting as an expiration period for competing bids to come to the table. Dell's top investors have verbally opposed the current deal, with activist investor Carl Icahn proposing Dell either seek out a better offer or go into debt to pay out a $9 special dividend to shareholders. I still continue to shy away from the idea of Dell taking on additional debt, but I definitely feel the company will need to seek out a better bid or sweeten the existing deal with a $1 or $2 special dividend if shareholders are going to approve it.
We can do better
Hold on to something and don't fall over, because this contrarian and value portfolio finally trumped the S&P 500 for a week! Sure, the gains are still tempered with the overall portfolio underwater by 2%, but it's an improvement. Over the long run, these cash flow cows should vindicate to the world that contrarian and deep-discount value investing do have a place in investors' portfolios.
Check back next week for the latest update on the 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 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, France Telecom, Nike, Skullcandy, and Staples. The Motley Fool recommends Exelon, France Telecom, and Nike. 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.
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