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 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 could 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
Following a miserable week, trucking company Arkansas Best led the rebound with a weekly gain of 13%. If you recall, Arkansas Best was pushed lower last week after one of its two remaining unions that hadn't ratified a new labor agreement threatened to go on strike. This week we discovered that one of those two unions had ratified the agreement, leaving just one remaining. This long-awaited labor agreement is vital to keeping Arkansas Best's costs competitive to its peers and could make the company very profitable. It's not out of the woods yet, but I remain optimistic.
This week's loser
With a debt-ceiling and government shutdown resolution essentially in the books, only one of the portfolio's 10 stocks actually moved lower on the week. Unsurprisingly, it was electric utility Exelon , which shed 3.2%. The impetus for the drop really came yesterday when Morgan Stanley downgraded Exelon from overweight to underweight and slashed its price target to just $21. It also doesn't help that the market keeps pushing higher while electric utilities like Exelon often benefit as a hedge when the markets are moving down or sideways.
Also in the news...
It was a mixed week for information technology specialist Xerox which pleased shareholders yesterday when it declared a fresh new dividend of $0.0575 per share, payable on Jan. 31. In addition, the announcement that more companies, such as Applebee's and Petco, are moving to private health-insurance exchanges (one of which is operated by a Xerox subsidiary) is bound to stir up optimism surrounding Obamacare. On the flip side, a temporary food-stamp card system failure over the weekend, as well as "hiccups" with Nevada's state-run health exchange, which Xerox helped design, are curbing the possibility of a near-term explosion in the share price.
Morgan Stanley also downgraded already beaten-down coal-miner Arch Coal from equal weight to underweight on the basis that Northern Appalachian coal basins are at the greatest risk for pricing pressures from low-cost natural gas moving forward. The bearish thesis derived from a negative view of thermal coal prices and Arch's levered balance sheet. I continue to view Arch as an intriguing turnaround play, given its multiple long-term export agreements with Asia and the prospect that coal prices have hit rock bottom.
Finally, we learned Thursday via comments in The Boston Globe that office supply super store Staples is planning to take off the gloves and matching e-commerce giant Amazon.com's prices as of Nov. 3. This will cover Staples' website and its brick-and-mortar locations. Simply put, if this strategy worked for Best Buy in competing for electronics sales, there's no reason to believe it wouldn't work for stationery and office supplies as well. Staples is already the No. 2 e-commerce retailer for office supplies behind Amazon; it has a good shot, with Amazon focused on other ventures, to take serious market share this holiday season.
We can do better
It still wasn't as strong of a week as I had hoped for, given the surge in the overall market, but this is a value-oriented and contrarian portfolio, so I should be happy with its 1.1% outperformance. Ultimately, I knew it would be difficult to go 10 for 10, but this portfolio needs just one or two more big gainers to vault past the S&P 500. Despite weakness in Dendreon and Arch, I feel confident this portfolio will still handily outperform the S&P 500 once the time frame of a 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 Amazon.com and Orange. It also owns shares of Staples and recommends Exelon. 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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