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
Having fallen well off its highs in recent weeks, shareholders in trucking company Arkansas Best saw shares advance roughly 20% this week after the company delivered strong second-quarter earnings results. I said previously that Arkansas Best's earnings would have to do the talking with its collective bargaining agreement about to be put in the rear view mirror... and did it ever! For the quarter, revenue rose 13%, to $576.9 million, as it recorded a profit of $0.18 per share, which was down from the year-ago period, but also reversed recent quarterly losses. The big news, other than Arkansas Best's profit, is that its collective bargaining agreement should be firmly in place within weeks, as long as the supplemental portion of the votes work in its favor.
This week's loser
On the other end of the earnings spectrum is biotechnology company Dendreon , which delivered its once-a-quarter earnings drubbing to shareholders. For the second quarter, Dendreon reported an 8% decline in revenue to $73.3 million, as EPS losses narrowed to $0.45. However, both figures missed the Street's expectations for the quarter and, more worrisome, it noted that sales of Provenge, its metastatic prostate cancer immunotherapy, won't top last year's sales -- a poor sign for a still relatively young therapy. Dendreon is certainly hoping for better luck in Europe with Provenge, assuming it's approved over there, as its situation in the U.S. couldn't possibly get any worse.
Also in the news...
In a rare move, I'm going to spare you from the ongoing Dell drama and focus on three other news stories that caught my attention this past week.
To start with, I'd like to give an honorable mention to coal miner Arch Coal , which jumped 18% on the week, yet wasn't the top gainer! The reason for the big move higher relates to Moody's upgrade of the coal sector late last week from a negative to stable outlook. While Moody's does seek weakness in earnings over the next 12 to 18 months, it doesn't see the fundamentals of the industry deteriorating further. That's good news for Arch, which could use a rebound in coal prices in the U.S. as it attempts to ramp up its overseas exports to stabilize its cash flow.
Printing service and information technology company Xerox advanced nicely this week after a double dose of good news. Citi Research echoed my ongoing comments earlier this week by commenting positively about Xerox's earnings potential with the upcoming implementation of Obamacare. Xerox processes all of California's Medicaid claims, and should see a big boost in business as Obamacare expands Medicaid to some 1.4 million new people in California alone. Xerox also made waves by announcing the purchase of privately held CPAS Systems, which develops pension administration software.
Finally, communications provider Orange saw a nice week with shares up 7% following a much better-than-expected second-quarter GDP growth figure from France, of 0.5%. This marks the fastest growth for France's economy since the beginning of last year, and gives hope to investors that the price war between Orange and Free Mobile in France may not eat into Orange's margins as badly as investors previously thought. Remember, Orange is trying to diversify into international markets, but still receives the majority of its revenue from France.
We can do better
Despite another astronomical flop from Dendreon, a big boost from Arkansas Best, Arch Coal, Xerox, and Orange helped push this deep-value and contrarian portfolio to one of its best weeks yet. This group of stocks has now gained 6.4% since inception, its highest level yet, and is underperforming the broad-based S&P 500 by less than 6% now, the lowest level in months! This portfolio is geared to outperform as long as the S&P 500 stops going straight up, and still contains some very intriguing values that may just be beginning their run higher.
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 and Moody's. 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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