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:
Exelon
QLogic
Dendreon
Dell
Staples
Arkansas Best
Arch Coal
Skullcandy
Orange
Xerox
Now, let’s get to the portfolio and see how it fared this week:
| Company | Cost Basis | Shares | Total Value | Return |
|---|---|---|---|---|
| Exelon | $31.25 | 31.68 | $972.89 | (1.7%) |
| QLogic | $11.46 | 86.39 | $928.69 | (6.2%) |
| Dendreon | $5.97 | 165.82 | $462.64 | (53.3%) |
| Dell | $13.37 | 74.05 | $1,020.41 | 3.1% |
| Staples | $13.48 | 73.44 | $1,036.97 | 4.7% |
| Arkansas Best | $10.83 | 91.41 | $2,421.45 | 144.6% |
| Arch Coal | $7.03 | 140.83 | $652.04 | (34.1%) |
| Skullcandy | $6.71 | 147.54 | $796.72 | (19.5%) |
| Orange | $11.64 | 85.05 | $858.15 | (13.3%) |
| Xerox | $8.16 | 121.32 | $1,203.49 | 21.6% |
| Cash | $0.06 | |||
| Dividends receivable | $102.00 | |||
| Total commission | ($100.00) | |||
| Original investment | $10,000.00 | |||
| S&P 500 performance | 8.9% | |||
| Performance relative to S&P 500 | (4.3%) |
Source: Yahoo! Finance, author’s calculations.
This week’s winner
Not to sound like a broken record or anything, but, once again, trucking company Arkansas Best Corporation (NASDAQ:ABFS) led the pack with a gain of 10% over the past week. The move comes on the heels of a huge analyst upgrade from Raymond James analyst Arthur Hatfield, who placed a strong buy on the company from market perform and established a $46 price target — nearly double where the stock was valued when he issued his price target! To add, Arkansas Best Corporation (NASDAQ:ABFS) also added to our dividend fund by paying out $0.03 per share last Thursday. With its labor negotiations finally in the rearview mirror, shares are up more than 150%, just since May.
This week’s loser
On the other side of the coin we have the perpetual underperformer of this portfolio, biotechnology stock Dendreon Corporation (NASDAQ:DNDN), which shed another 12% of its value this week. Whereas Arkansas Best Corporation (NASDAQ:ABFS) benefited from an analyst ratings boost, Dendreon Corporation (NASDAQ:DNDN) found itself on the short end of the stick after a dismal earnings report. Deutsche Bank analyst Robyn Karnauskas dropped her rating on Dendreon to sell from hold, and placed a $1 price target on the stock, implying about 70% downside, due to weak Provenge sales and rising debt levels. While I maintain hope for Dendreon Corporation (NASDAQ:DNDN), it is by far the biggest gamble of these 10 deep value plays.
Also in the news…
Sticking with the theme of analyst downgrades, you sort of figured a few were coming for office supply superstore Staples, Inc. (NASDAQ:SPLS) following its disappointing second-quarter results. Jefferies lowered its price target to $14, but maintained its hold rating on the company. Still, that would imply about 1% downside from its current price. Similarly, Credit Suisse dropped its rating to neutral from outperform, noting that margins may face further downside pressure. As for me, it’s steady as it goes for Staples, Inc. (NASDAQ:SPLS), which is set to pick up quite a few displaced customers from the impending OfficeMax and Office Depot merger.
Although audio accessories maker Skullcandy Inc (NASDAQ:SKUL) gave up a good chunk of its gains, shares briefly traded over $6/share earlier this week after announcing that Heidi O’Neill had joined its board of directors. Ms. O’Neil is the vice president and general manager of women’s training and fitness at Nike, and is another long-tenured retail expert who should help guide Skullcandy out of its recent funk.
Finally, on Wednesday, we lost a couple of pennies — $0.03 to be exact — off of coal miner Arch Coal Inc (NYSE:ACI); but relax… it’s for a good reason. On July 25, Arch declared a regular quarterly dividend of $0.03 per share, and we’ve finally hit the ex-dividend date. Shareholders of Arch can expect to receive their payout as of Sept. 13. Arch also received coverage from research firm FBR, which resumed coverage on the company with an outperform rating and a $6 price target.
We can do better
Although I’d love to see all 10 companies heading higher, the performance of this portfolio is demonstrating that all it takes is one multi-bagger to deliver big gains. Arkansas Best Corporation (NASDAQ:ABFS) has been an absolute lifesaver with its labor agreement contract now out of the way, and has more than negated poor performances by Dendreon Corporation (NASDAQ:DNDN) and Arch Coal. In addition, with the S&P 500 now 4% off of its all-time highs, this contrarian portfolio has rapidly been gaining ground on the index, and is now underperforming the S&P 500 by just 4.3%. (Remember, this portfolio was underperforming by 15% just a few months ago.) Over time, I fully expect the gains to switch in favor of this deeply discounted group of companies.
Check back next week for the latest update on this portfolio and its 10 components.
The article One Person’s Trash Is Another Person’s Treasure Portfolio originally appeared on Fool.com and is written by Sean Williams.
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 Nike and Orange. It also owns shares of Dendreon, Skullcandy, and Staples, and recommends Exelon.
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