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 this week were shares of Dell , which added 8.3%, $1.05, after its board of directors denied Michael Dell the right to change how non-voting shareholders are counted. The board did, however, allow Michael Dell to extend the voting date on the premise that he keep his $13.75/share bid on the table. Dell's latest offer to secure a private buyout included a $0.13 per share one-time dividend, and promised shareholders they'd receive their third-quarter $0.08 quarterly payout, as well. Activist investor Carl Icahn continues to refute that Dell's offer is a slap in the face to shareholders, and plans to pursue a lawsuit in the state of Delaware in the best interests of shareholders.
This week's loser
Taking it on the chin hardest this week was trucking company Arkansas Best , which shed 9.6% after it was undeniably confirmed by YRC Worldwide that Arkansas Best had spurned its takeover offer. Following Arkansas Best's ratification of its collective bargaining agreement, shares of the company have been on fire. I'm not too surprised to see shares pulling back a bit here, and would expect bottom-line results rather than buyout rumors to drive the stock from here on out.
Also in the news...
Shareholders (like me) of audio accessories maker Skullcandy had high hopes heading into its second-quarter results last week. To put it mildly, its quarterly report was ug-ly! Net sales dropped 30%, to $50.8 million, as U.S. sales plummeted 39% with retailers choosing to purchase and carry less, and competition increasing. Thankfully, tight cost controls under new CEO Hoby Darling resulted in a breakeven bottom-line, which was much better than the $0.03 loss per share expected by Wall Street. Ultimately, this is an ongoing turnaround story, and I'm not planning to give up my shares. Skullcandy still has a shot at dominating the lower-end audio market, and that seems like a pretty safe bet, with the company valued at just a fraction over its book value.
You may not notice it by the week-ending price, but shares of Dendreonshot significantly higher in anticipation of its second-quarter results to be released today. This is expected to be the first look at Dendreon's cost-saving initiatives, and it should give investors an indication of whether or not the company's advertising campaign is striking a cord with patients and physicians. Shareholders do have a reason to be a bit skeptical given its shaky earnings history, but with a smaller-than-expected loss forecast, this may actually turn out to be a pleasant report.
Finally, Orange , in its ongoing effort to stimulate growth outside of France, announced recently that it and Vodafone are planning to share a network in Romania in order to lower capital investments for both companies. The two will jointly develop a faster 4G network that will allow both companies to reach more rural markets of Romania, although the two will still remain competitors within the country. Orange may look to make similar deals in other emerging markets if it means less extensive upfront capital costs.
We can do better
Although the trading action was pretty even between stocks in the portfolio this week, the huge swoon lower in Arkansas Best, the largest holding by value, definitely put a dent into the overall results. I still feel confident that over the long run, this group of deeply discounted and contrarian companies can easily outperform the S&P 500. Now, if I could just get the market to stop going straight up...
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, Orange, and Vodafone. 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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