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
Topping the list of gainers this week was biotech firm Dendreon , up 3.8%, which, if you recall, was the worst performer in the previous long week. Although no company-specific news drove shares higher, anticipation from bulls must be building that, with a favorable opinion of Provenge from the European Medicines Agency's panel, an approval might be right around the corner in Europe. It may not get Dendreon to profitability anytime soon, but an EMA approval is a must if Dendreon is going to be a successful company and perhaps draw the attention of a larger rival.
This week's loser
Once again getting this week's dubious award for worst performer is no stranger to the category, Arch Coal . It's ironic, as well, that the best and worst performers from last week swapped places this week! Arch's 6.5% tumble has everything to do with its second-quarter earnings results, which showed a 21% decline in revenue, to $766 million, despite a narrower adjusted loss of just $0.29 per share. Comparatively, the loss was $0.05 per share less than the Street expected, but revenue fell about $153 million short of estimates. Arch plans to focus on cost-cutting through the remainder of 2013 until pricing improves, and I'll be looking forward to see if it can diversify its revenue stream meaningfully through its exports.
Also in the news...
In this week's episode of "Dell's of our Lives," we learned that the buyout offer by Michael Dell and Silver Lake Partners is on increasingly shaky ground. Dell's board of directors denied his voting change request to not count shareholders who do not vote in the opposition column, but did grant him and Silver Lake the possibility of another round of voting delays on the proposed buyout if it sticks to its slightly higher bid of $24.6 billion, or $13.75 per share ($0.10 higher than the original bid), which was announced last week. Michael Dell has been adamant in his stance that he won't raise his offer, so this battle royale is certainly about to get interesting.
Exelon reported its second-quarter earnings results yesterday before the bell, and overall, they were solid. Exelon did miss EPS by $0.01, reporting a profit of $0.53, but handily topped revenue projections of $5.76 billion with $6.14 billion in revenue. Furthermore, Exelon reaffirmed its full-year EPS forecast of $2.35-$2.65, which is right in line with the Street's current expectation of $2.48 in EPS. Perhaps some of the backlash can be traced to Exelon's management sticking with its large nuclear portfolio despite its high cost in recent quarters. As for me, I see Exelon reducing costs as needed to make ends meet, and I foresee the U.S. government stepping in with subsidies in the not-so-distant future to make nuclear a viable option for fueling America, once again.
To end on good news, office-supply superstore Staples was upgraded on Wednesday by research firm Zacks to strong buy. The reasoning behind the upgrade is Staples' focus on improving its direct-to-consumer operations, its expanded product offerings, and streamlined cost structure. I've been saying, since the Office Depot-OfficeMax merger was announced, that Staples is in perfect line to garner market share from its rivals because of store closures and the appearance from consumers of being the strongest of all office-supply chains.
We can do better
Although it was a relatively short week, it was nonetheless a down week for the portfolio, with both my best and worst performers since inception taking a hit. The real trouble has been the persistently uptrending market, which works in the opposite fashion of a deeply discounted contrarian portfolio. We've only had one correction since January, and this portfolio rapidly picked up steam during that quick swoon, so I look forward to a moderating market going forward, and the expected rise of this contrarian portfolio.
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 Dendreon, Skullcandy, and Staples, and recommends Exelon and Orange. 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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