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
Although there was no company-specific news out of Dendreon this week, following weeks of poor performance, it tacked on 8.7%. Presentations at the American Society of Clinical Oncology's annual meeting two weeks ago certainly helped to excite investors with regard to the potential of immunotherapy stocks, but Dendreon needs a lot more help than what a few early and mid-stage studies can offer. If Dendreon is to keep this rally going, it'll need decisively positive data on advanced prostate cancer treatment Provenge in Europe. We should certainly know more about its progress in Europe within the next few months.
This week's loser
If Dendreon was the Yin last week, then coal miner Arch Coal was certainly the Yang, shedding 13% of its value. The culprit for the move has been a combination of weak growth results out of China, as well as an untimely downgrade of earnings estimates and coal price projections for five metallurgical coal companies -- including Arch, which was lowered to "underperform" -- by Raymond James. Arch has struggled mightily domestically, so its plan to ramp up production via coal exports relies on steady emerging-market growth, specifically in Asia, where it's set up many of those export agreements. If Asia begins to slow, it'll put Arch in a tough situation.
Also in the news...
In this week's episode of "Dells of Our Lives," we received word that the company's board of directors approved an $0.08 quarterly cash distribution, payable on July 22, 2013 for shareholders on record as of July 1, 2013. Sure, this news is a bit more tame than the mudslinging Carl Icahn and Dell's management have thrown back and forth at each other over the past couple of weeks, but we should know more within the next five weeks, when Dell shareholders vote on the proposed offer of $13.65 per share by founder Michael Dell and private-equity firm Silver Lake Partners.
Keeping with the theme of dividends, on Monday, we added an additional $9.82 in cash to the portfolio thanks to a $0.31 quarterly distribution from electric utility Exelon . Although Exelon's dividend is down considerably from $0.525 in the prior quarter as it attempts to utilize its free cash flow to invest in new forms of renewable energy, we have to remember that we're still getting a very solid 4% yield here. The concerns about Exelon's future revenue stream being at risk seem overblown to me, and I consider its latest retracement an intriguing buying opportunity.
Finally, because three isn't a crowd when it comes to receiving dividends, we received our $0.2637 per share distribution from France Telecom . France Telecom pays out two semi-annual dividends each year that can vary wildly in size. Like Exelon, France Telecom reduced its dividend by more than 40% recently, but is still pledging to deliver what would equate to at least 0.80 euros ($1.07) this year. That would equate to a yield of 10.8% based on yesterday's closing price, and the prospect of nearly an $0.80 dividend being announced later this summer. Don't be surprised if you see income seekers jumping into France Telecom in the coming months.
We can do better
Don't call it a comeback, but that's six straight weeks that this deep value and contrarian portfolio has bested the S&P 500. There's still quite a long way to go before I can say it's outperforming the S&P 500, but we're finally starting to see a few of these companies getting the respect they deserve.
Check back next week for the latest update on this portfolio and its 10 components.
Does Exelon have the right tools to succeed?
As the nation moves increasingly toward clean energy, Exelon is perfectly positioned to capitalize on having the largest nuclear fleet in North America. This strength, combined with an increased focus on balance sheet health, and its recent merger with Constellation, places Exelon and its resized dividend on a short list of the top utilities. To determine if Exelon is a good long-term fit for your portfolio, you're invited to check out The Motley Fool's premium research report on the company. Simply click here now for instant access.
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, and 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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