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
Source: Yahoo! Finance.
This week's winner
This was a really odd week, with very few big moves and things generally quiet from a news perspective. The top performer this week was electric utility Exelon , which jumped 2.8% despite no company-specific news. I would postulate Exelon shares advanced on the high hopes of investors who expect the warm summer months to push energy demand higher. Exelon still needs to find a way to contend with the high costs of its nuclear energy portfolio, but summertime tends to be a bread-and-butter time of year for most electric utilities.
This week's loser
Bringing up the caboose this week was PC-maker Dell , which fell 3.4% on the week after founder Michael Dell and Silver Lake announced they have no intentions of raising their buyout offer from $13.65 per share. Carl Icahn, who has submitted numerous counterproposals to up the ante for shareholders, has urged shareholders to vote against the deal. As of now, it looks like support for Dell and Silver Lake's offer could be waning. We'll know more after the buyout vote on Thursday.
Also in the news...
Network infrastructure products provider QLogic may have ended the week higher by about 1%, but it certainly got no help from Morgan Stanley, which downgraded the company to underweight from equal weight, and cut its price target to $9. Morgan Stanley cited the expectation of weak enterprise server demand in relation to businesses shifting to cloud providers as its reasoning for the downgrade. As a shareholder, I'm not too concerned, because of QLogic's hefty cash position, steady profits, and ability to stay on the leading edge of the innovative curve.
Telecommunications company Orange (previously France Telecom) made headlines this week via a Reutersreport that suggests it's in talks to sell its mobile operations in the Dominican Republic for approximately $1.2 billion. Orange holds the second-highest market share in the country, at 38.4%, so it should have quite a few interested parties given that subscribership rose by 5.4% in the first quarter. Orange would likely use the proceeds to pay down debt or for acquisitions in fast-growing emerging markets.
Finally, it may not appear like a big story when we have the heart of earnings season approaching, but I feel it's worth mentioning that Xerox plans to add 1,000 seasonal hires in Colorado to be trained to help people who want to make changes to, or enroll in, health-care plans. I consider this important for two reasons. First, the hiring points to confidence from Xerox's management that its business is back on track. Second, it points to purported strength in its Medicaid processing business, which should be fueled by the implementation of Obamacare and the expansion of persons who qualify for Medicaid.
We can do better
Generally speaking, when the market goes straight up, it's normally going to outperform my deeply discounted contrarian portfolio... and that's precisely what we saw this week, despite a marginal gain in the "One Person's Trash Is Another Person's Treasure" portfolio. As I've said previously, I expect any moderation in the uptrend to result in a major outperformance for this portfolio compared to the broad-based S&P 500. Geared for the long run, these deeply discounted names should be on your radar.
Check back next week for the latest update on this portfolio and its 10 components.
Keep in mind that contrarian thinking can work both ways. With the American markets reaching new highs, investors and pundits alike have been skeptical about future growth... but they shouldn't be. Many global regions are still stuck in neutral, and their resurgence could result in windfall profits for select companies. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report!
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 Dendreon, Skullcandy, and Staples, and recommends Exelon and Orange. 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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