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 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 thought 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 of 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
The market hitting new highs is generally not a welcome sign for a portfolio filled with deep-discount and contrarian plays. Despite the market's move higher, Staples was the big winner, advancing 4.3% on the week. I firmly believe that the office supply chain has a good chance of surprising Wall Street with a better-than-expected quarter and forecast now that it has traffic-driving Apple accessories in its stores and is going to reap the rewards of any dysfunction caused by the pending merger between Office Depot and OfficeMax.
This week's loser
On the flip side, "yuck" may not properly sum up how poorly trucking company Arkansas Best performed following its first-quarter earnings report. Shares lost 16.4% this week after Arkanasas Best reported a quarterly loss of $0.52 per share despite an 18% rise in revenue to $520.7 million, aided by its acquisition of Panther Expedited Services. Revenue was in line with expectations, but the loss was a clean $0.13 more than the Street had anticipated. The company noted that high labor costs continue to weigh on its business model, pressuring the need for concessions on both sides of the aisle in the future.
Also in the news...
Portfolio top-performer Exelon looks primed to continue its rally after reporting better-than-expected first-quarter results on Wednesday. For the quarter, Exelon's revenue skyrocketed 47% --primarily because of its Constellation Energy acquisition -- while EPS fell about 18% from the year-ago period to $0.70. However, revenue topped Wall Street's forecast by nearly $700 million and EPS by $0.02, further adding weight to the thesis that Exelon's dark days are behind it. With the company focused on diversifying away from nuclear power and into alternative energies, there's little reason to believe its diverse energy portfolio won't lead to big profits for shareholders.
France Telecom finds itself in the news after the French government axed a deal for Yahoo! to take a controlling stake in the company's online video website DailyMotion. DailyMotion has been growing rapidly and the French government noted its intent to keep the site out of foreign hands. For France Telecom it would have freed up cash that it could have deployed to upgrade its networks in France and rapidly growing African markets. While this is certainly not the end of the world, the death of this deal is disappointing for both parties involved.
Finally, Dendreon shares managed to shake off positive news for one of its competitors and end the week modestly higher. Medivation, which makes advanced prostate cancer drug Xtandi, received a positive opinion from Europe's Committee for Medicinal Products for Human Use, or CHMP. While not a guarantee of approval in the EU, it basically clears the way for Xtandi to be approved, which now seems like a formality. With another prostate cancer therapy in Europe possibly on the way, Dendreon is going to need to step up its game with Provenge if it hopes to remain competitive.
We can do better
It's painful to admit, but if the market continues to go straight up, my portfolio built upon deeply discounted stocks and contrarian plays is probably going to struggle to keep up. This week we fell yet again in relation to the S&P 500 and now sit about 15% below it in terms of performance. It's a long, long race, though, and there's still plenty of time for these 10 companies to outperform their peers over the long haul.
Check back next week for the latest update of this portfolio and its 10 components.
Does Exelon have the power to head higher?
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 if 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. The Motley Fool recommends Apple, Exelon, and 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.
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