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 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 could 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
Completely wiping away its tumble from two weeks ago, trucking company Arkansas Best surged 11.3% despite a lack of company news this week. If you recall, nearly all of Arkansas Best's labor unions had approved its new multiyear labor agreement, save for one that was threatening to strike. This labor agreement is a key component to keeping subsidiary ABF Freight System competitive on a cost basis within the industry. With high levels of short interest built up in the stock, it appears that a squeeze was the main culprit this week.
This week's loser
As should come as no surprise by now, biotech disappointment Dendreon was again the worst performer this week, shedding another 17%, most notably after rival Medivation and its marketing partner Astellas Pharma reported positive results from their PREVAIL trial for Xtandi. Currently, Xtandi is only approved to treat prostate cancer patients after they've been treated with chemotherapy. The PREVAIL trial tested Xtandi's use in a pre-chemo setting, and the results were quite encouraging. This is yet another blow for Dendreon's Provenge, which didn't perform particularly well in a pre-chemo setting, and puts it potentially further behind its peers.
Also in the news...
The Dell drama has officially entered its final chapter, with the company paying out its third-quarter dividend of $0.08 to shareholders this past week and declaring its special dividend of $0.13 per share, payable to shareholders immediately upon Dell's being taken private (which should be within the next week). With Dell going private, you can look for a new company to be added to this portfolio shortly, with the profits earned from our Dell "purchase" being banked in the cash section.
Dell wasn't the only company handing out its quarterly stipend over the last week. We also collected a $0.12 per-share dividend from office supply superstore Staples last Thursday. Staples' turnaround certainly has been challenging, but the merging of its peers OfficeMax and Office Depot should give it plenty of domestic opportunity to acquire customers as store closures from the merger displaces shoppers. Given its heavy emphasis on direct-to-consumer business and the fact that it's taking its fight directly to Amazon.com by matching prices, I feel Staples could surprise more than a few investors this holiday season.
Finally, overseas telecom service provider Orange reported its third-quarter results. For the most part, the report was rather ho-hum, with revenue falling 4% year over year but dropping only 2.4% if you exclude regulatory costs in France. Revenue in France and Orange's enterprise segment were the weakest, falling nearly 5% and more than 7%, respectively, while revenue growth in Spain, Africa, and the Middle East helped the most. Overall, Orange had 232.5 million subscribers by quarter's end -- a 2.1% increase over the previous year -- and it's seeing a nice boost in broadband subscribers. Most importantly, it has generated 6 billion euro in cash flow so far this year and is well on its way to achieving its target of 7 billion euro in cash flow generation for the year. That'll be a key component to keeping the company's dividend yield around 10%.
We can do better
There's little denying that Arkansas Best was a big help in aiding this portfolio's outperformance this week. But this is a portfolio of deeply discounted, contrarian names, and the fact that the market hasn't stopped going up has certainly been detrimental to its success. However, it wouldn't take more than a minor correction, or perhaps even one or two rallies from companies within this portfolio, to turn things around and put us decisively ahead of the S&P 500. I've still got three months left to show you the value of contrarian thinking, and I firmly believe it'll still outpace the S&P 500 when all is said and done.
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 Amazon.com and Orange. It also owns shares of Staples and recommends Exelon. 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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