One Person's Trash Is Another Person's Treasure Portfolio
In November 2012, 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 felt 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 on 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
We've all had those weeks where not much went right, and this is one of those weeks. Arch Coal was this week's standout, rising 2.5%, following a reiteration at "neutral" from research firm Zacks. Arch Coal is focusing its efforts on beefing up its exports to China and other emerging markets in order to improve demand, but domestic production still accounts for the lion's share of its sales. As prices in the U.S. stabilize, we should see Arch Coal's rebound catch hold.
This week's loser
There were plenty of disasters to choose from this week, with seven of 10 companies moving decisively lower, but Dendreon again took the cake with a 9.3% drop. Yesterday marked the end to Dendreon's 11-day consecutive down streak, which had been highlighted by its settlement to litigation claiming that it misled investors regarding its immunocellular prostate cancer treatment, Provenge. I stand fast in my assessment that an EU approval this year would be paramount to helping Provenge sales double and moving Dendreon a lot closer to profitability.
Also in the news...
"Dell's of our Lives" continues to be the most-viewed soap opera running on Wall Street since February. Last Friday, Dell disclosed that it had received two additional bids that would make the $13.65 per share offered by Silver Lake Partners and Michael Dell obsolete. Carl Icahn, along with Icahn Enterprises, offered to pay $15 in cash for up to 58% of the company, allowing the remaining shares to be in public hands. Blackstone Group offered at least $14.25 per share, but may wind up taking the entire company private, selling off noncore assets of Dell to help pay for the takeover, or may roll a small portion back to shareholders. All told -- as a shareholder in Dell -- I favor the Blackstone offer but don't discount the prospect that Blackstone and Icahn may try to combine their efforts.
Last week I noted that France Telecom had been considering selling its stake in online video site Dailymotion. In fact, the European-based telecom provider was the best-performing company in this portfolio last week. Even with Business Insider calling the deal all but done, worries concerning Cyprus and rising Italian lending rates are once again putting a kibosh on EU growth rates. Shares had a rough ride this week, falling about 8%.
Finally, the battle between trucking company Arkansas Best's subsidiary ABF Freight Systems and YRC Worldwide continues to rage on. As part of YRC's restructuring, concessions were given by the union that save the company $350 million annually. However, ABF insists that the concessions violate the National Master Freight Agreement. If ABF is successful in its court case, it could invalidate the concession agreement and put YRC in a really scary predicament. That's certainly one way to eliminate a prime competitor and boost your business!
We can do better
As I mentioned, it was a miserable week, with many of the portfolio's components dropping noticeably when compared to a relatively flat S&P 500. Although I lost more than 3% to the S&P 500 this week, I also understand that the market can't go up forever, and that these deeply discounted names are primed to outperform if optimism deflates in the slightest.
Check back next week for the latest update on the portfolio and its 10 components.
Resurgence, or dead-cat bounce?
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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 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 Dendreon, France Telecom, Skullcandy, and Staples. The Motley Fool recommends 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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