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
Amid the worst sell-off we've seen in a week over the past year for the broad-based S&P 500, it isn't too shocking to discover that trucking company Arkansas Best was the top gainer over the past week, adding 2.6%. There wasn't any company-specific news moving the stock this week; however, the positive overhang from its recently signed collective bargaining agreement with its labor union appears to be the likely force driving the share price higher. Even I'm a bit stunned at the magnitude of the move in shares, but I do see plenty of value here over the long run. Shares are now up 122% since inception of this deep value portfolio.
This week's loser
But for every winner there must always be a loser, and that title goes to office-supply superstore Staples , which imploded, down 16.9% on the week, after reporting disappoint second-quarter results and a weaker-than-expected full-year outlook. For the quarter, Staples delivered a 2% decline in revenue to $5.3 billion as profits declined to $0.16 per share from $0.19 in the year-ago period. Store closures and an ongoing restructuring took its toll on the company as recently strong international sales also tumbled 8%. Furthermore, Staples lowered its full-year EPS outlook to a range of $1.21 to $1.25 from prior guidance of $1.30 to $1.35. Despite the miss, cash flow for the quarter saw a nice increase from the year-ago period, and I think that with OfficeMax and Office Depot merging, the store attrition that will be created will give Staples a chance to pick up plenty of back-to-school shoppers.
Also in the news ...
Coal miner Arch Coal did end the week marginally lower, but not before announcing the sale of its Canyon Fuel subsidiary in Utah to Bowie Resources for approximately $423 million. This sale represents Arch's ongoing efforts to streamline its operations by selling off non-core assets to reduce costs and raise cash. Arch expects to record a pre-tax gain of roughly $120 million in the upcoming quarter on the sale and anticipates total savings will equal $200 million between 2014 and 2017 as it rids itself of all of its Utah assets.
In this week's episode of "Dells of our Lives," we actually received useful information rather than just buyout banter. Dell, on Thursday of last week, reported its second-quarter earnings results, which were actually a bit "less bad" than anyone expected. For the quarter, PC profits fell by more than 70% as total revenue came in flat at $14.5 billion. Amazingly, though, adjusted EPS topped the Street's expectations by $0.01 to $0.25. The next big date on shareholders' minds is Sept. 12, the official shareholder vote on the proposed Silver Lake/Michael Dell buyout at $13.75 per share after multiple delays. I can tell you one thing: I'm certainly ready to cast my ballot!
Finally, printing services and information technology specialist Xerox received some positive commentary from Jack Hough at Barron's, who claimed that it and Hewlett-Packard could return 20% or more next year. It's not often that I agree with Barron's, but their assessment of Xerox is spot-on. The company is in the midst of a big transition from printing services to IT services, and it stands to gain in a big way once Obamacare becomes fully implemented on Jan. 1 as California's lone Medicaid processing company.
We can do better
If not for Staples, this portfolio would have once again easily outperformed the S&P 500 in a big down week, but sometimes that's just how the cookie crumbles. Over the long haul we still have some very undervalued and attractive names here that I think value investors are overlooking, and I fully expect this portfolio to easily make up the 6.6% underperformance to the S&P 500 and some before the year is up.
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 Dendreon, Skullcandy, and Staples, and recommends Exelon. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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