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
This week's winner
Thanks to concerns about a potential credit crunch in China, and the somewhat imminent paring back of QE3 by the Federal Reserve, it wasn't easy to find a gainer last week. Taking the top honors was electric utility Exelon with a paltry 2.2% gain on the week. Despite no company-specific news, the reasoning behind the move higher is pretty easy to understand. Exelon is a necessity stock in that supplies energy, which will remain in fairly steady demand regardless of whether or not we dip back into another recession. With somewhat predictable cash flow, it's a wonderful safety net for investors to turn to in times of uncertainty.
This week's loser
Conversely, with China's Shanghai Composite swooning as much as 15% in a span of five days, commodity stocks absolutely took it on the chin. For the third-straight week, Arch Coal was the worst performer, shedding another 12.6%, and is now down nearly 50% from late January. The thesis here is that, if China's growth slows because loans aren't available, then demand for coal and other materials will fall. Arch Coal's growth plan entailed forging export deals to China and Southeast Asia, so China's slowing growth is certainly a concern.
Also in the news...
In this week's episode of "Dells of Our Lives," we found out more details about Carl Icahn's latest plans to extract more value from Dell's shares. According to Icahn, he plans to finance his $14 per share partial buyout with $7.5 billion in cash currently on the balance sheet, a $5.2 billion credit facility, and $2.9 billion from the sale of receivables according to a Reutersreport. Dell's board still remains skeptical of Icahn's latest offer as we near the shareholder vote on the proposed Silver Lake/Michael Dell buyout at $13.65/share in three weeks.
Staples shares retreated a bit this week despite receiving a boost from research firm Zacks to neutral. The reasoning behind the upgrade is the expectation of market share gains from its peers via growth in its direct-to-consumer business, expanded product offerings, and tight cost structure. I fully expect Staples will surprise many investors over the coming quarters as it picks up customers soon to be displaced by store closures from the OfficeMax and Office Depot merger.
Finally, on Monday, we'll have a new name in the portfolio... technically. On July 1, France Telecom will officially be changing its name to Orange, its wireless division responsible for the majority of its growth. Investors can certainly hope that the name change will disassociate France Telecom from its recent struggles, and turn investor attention to emerging market growth opportunities. I'm still holding my shares, and may be tempted to add to my position if there's another sizable dip.
We can do better
Due to the poor performance of my foreign and commodity-based value plays, I underperformed the S&P 500 for a second-straight week. However, I have to think that some of these heavily battered names are nearing a bottom, and I still fully expect this portfolio of forgotten and deeply discounted value plays to outperform the S&P 500 over the long run.
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 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. It also 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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