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
Shares of printing solutions and IT-management specialist Xerox took the top honors this week, advancing 6.8%, after receiving positive comments from research firm Brean Capital. Brean commented that it believes Xerox remains attractive based on its cash flow, and reiterated its "buy" rating and $10.50 price target on the company. I see the coming explosion in Medicaid patients - especially in California, where Xerox processes all Medicaid claims - due to the implementation of Obamacare as the biggest boost to Xerox's bottom line moving forward.
This week's loser
Coal miner Arch Coal took the dubious honor of portfolio goat for a second-straight week, matching Xerox's 6.8% gain with a 6.8% weekly loss of its own. The story here continues to be much of the same: coal prices and demand remain weak as renewable energies are gaining prominence, with most being now just as cost-effective as coal (if not cheaper in some cases). Arch Coal's case was hurt even further when metallurgical coal producer Alpha Natural Resources predicted that further mine closures would be needed in the U.S. to stem oversupply and poor pricing.
Also in the news...
In this week's episode of "Dells of Our Lives," we learned that Carl Icahn has proposed a new method of increasing shareholder value outside of his original $15 per share tender for most of the outstanding shares. The new proposal involves Dell to self-tender its shares -- a fancy word for buyback -- in the amount of $16 billion. Dell's special committee board is reviewing the new offer, but has already commented that it needs more details, and anticipates the new offer will fall well short of the Silver Lake Partners/Michael Dell deal already on the table.
Shareholders in networking equipment maker QLogic certainly have a reason to rejoice, as it will be added to the S&P Small Cap 600 as of the close of business on Friday. Being added to the S&P Small Cap 600 index will mean that mutual funds that track the index will be required to purchase shares of QLogic. With more than $5 in cash per share on its balance sheet, the downside risk in QLogic is quickly abating.
Finally, audio accessories company Skullcandyannounced a realignment of some of its business divisions, and the upcoming departure of current CFO Kyle Wescoat, who plans to leave the company in September. Under the new alignment, Skullcandy plans to relocate its marketing, creative, business development, and legal departments to its Park City, Utah, headquarters. Although this will translate into a pre-tax restructuring charge of $3 million to $3.8 million, it's a strong move to help unify Skullcandy's new strategy.
We can do better
All good things must come to an end, and the six-week streak of outperformance came to a halt this week, with the S&P 500 outpacing my deep value portfolio by 0.2%. As I keep saying, though, this isn't a sprint -- it's a marathon. These 10 companies all possess intriguing valuations, and appear to be perfect contrarian plays in an otherwise bullish market.
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, 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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