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, author's calculations.
This week's winner
Leading the pack this week for a nice change was communication service provider Orange , which tacked on 5.6%. Although there was no company-specific news on Orange, the announced megadeal between Verizon and Vodafone Group, which has Verizon buying Vodafone's 45% stake for $130 billion in their joint venture Verizon Wireless, is likely the impetus for the move. Deal activity of this magnitude could create another wave of communications consolidation, which has the effect of pumping up share prices across the sector.
This week's loser
On the flipside, trucking company Arkansas Best fell flat, with a loss of 3.1% on the week. Like Orange, Arkansas Best didn't have any company-specific news moving its share price. Instead, I feel this week's move was a mixture of profit taking (the stock has nearly tripled in a matter of months), and higher diesel prices, which rose almost $0.07 per gallon over the previous week. Fuel costs are a big concern for trucking companies, and higher oil prices stemming from a potential Syrian conflict could eat into trucking companies' margins.
Also in the news...
Assuming the circus doesn't again come to town, the "Dell's of our Lives" made-for-TV drama should come to a conclusion one week from today, when shareholders cast their vote for the proposed $13.75/share plus $0.13 special dividend buyout offer. With roughly seven months of back-and-forth bickering between Michael Dell and opponents of the deal, I, as a shareholder, am beyond tired of waiting for this vote to materialize. Should Dell and Silver Lake garner the votes required to proceed, the share price likely won't budge much -- if at all. Should the vote fail, Dell's shares could face some near-term downside.
On Tuesday, Xerox issued a very intriguing press release regarding just how intricately tied to the growing health industry its services and software-as-a-service business is becoming. According to Xerox, it has processed $1.7 billion in federal incentives to health-care providers who use electronic health records out of a total of $15.9 billion paid out by the Center for Medicare & Medicaid Services. Xerox's state-level registry tools are becoming quite popular and, as the sole payment processor of Medicaid claims in California, Xerox looks like it'll clean up as the Patient Protection and Affordable Care Act, known also as Obamacare, is implemented.
Finally, keeping with our theme of a week light in news, biotechnology company Dendreon saw its shares jump (that's right... a green arrow next to Dendreon!), by 5% on the week. Shares of Dendreon have been absolutely decimated thanks to a reduced revenue forecast for advanced prostate cancer drug Provenge, and the only cure right now would be an EU approval and incredible ramp-up in overseas sales. While the market is very skeptical of that happening in the near term, existing Dendreon shareholders nonetheless got a bit of relief this week.
We can do better
Having a portfolio filled with deeply discounted, and often contrarian, stocks can make for a tough week when the S&P 500 advances by close to 2%. As you can see, we did lose a little bit of ground as Arkansas Best caved in to some profit taking, but I remain confident that these under-appreciated names will eventually come out well ahead of the S&P 500. As we've seen in recent weeks, it only takes one or two big winners to really propel this portfolio higher -- might Xerox be the next Arkansas Best? Only time will tell!
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 Skullcandy and Staples, and recommends Exelon and Vodafone Group. 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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