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 Corporation (NYSE:EXC)
- QLogic Corporation (NASDAQ:QLGC)
- Dendreon Corporation (NASDAQ:DNDN)
- Dell Inc. (NASDAQ:DELL)
- Staples, Inc. (NASDAQ:SPLS)
- Arkansas Best Corporation (NASDAQ:ABFS)
- Arch Coal Inc (NYSE:ACI)
- Skullcandy Inc (NASDAQ:SKUL)
- Orange SA (ADR) (NYSE:ORAN)
- Xerox Corporation (NYSE:XRX)
Now, let’s get to the portfolio and see how it fared this week:
| Company | Cost Basis | Shares | Total Value | Return |
|---|---|---|---|---|
| Exelon Corporation (NYSE:EXC) | $31.25 | 31.68 | $1,002.67 | 1.2% |
| QLogic Corporation (NASDAQ:QLGC) | $11.46 | 86.39 | $921.78 | (6.9%) |
| Dendreon Corporation (NASDAQ:DNDN) | $5.97 | 165.82 | $732.92 | (26%) |
| Dell Inc. (NASDAQ:DELL) | $13.37 | 74.05 | $958.21 | (3.2%) |
| Staples, Inc. (NASDAQ:SPLS) | $13.48 | 73.44 | $1,214.70 | 22.7% |
| Arkansas Best Corporation (NASDAQ:ABFS) | $10.83 | 91.41 | $2,061.30 | 108.2% |
| Arch Coal Inc (NYSE:ACI) | $7.03 | 140.83 | $587.26 | (40.7%) |
| Skullcandy Inc (NASDAQ:SKUL) | $6.71 | 147.54 | $823.27 | (16.8%) |
| Orange SA (ADR) (NYSE:ORAN) | $11.64 | 85.05 | $860.71 | (13.1%) |
| Xerox Corporation (NYSE:XRX) | $8.16 | 121.32 | $1,175.59 | 18.8% |
| Cash | $0.06 | |||
| Dividends receivable | $99.26 | |||
| Total commission | ($100.00) | |||
| Original investment | $10,000.00 | |||
| S&P 500 performance | 12.6% | |||
| Performance relative to S&P 500 | (8.2%) |
Source: Yahoo! Finance.
This week’s winner
You’ll notice this was a slightly “longer” week than usual, and I attribute that to spending some time with family and friends on a still ongoing vacation. However, while I was away, Arch Coal Inc (NYSE:ACI) made a strong 6.4% move to the upside from the last time we looked at it. Two factors seem to be playing a big role in its run higher, including better-than-expected earnings results from coal miner Peabody Energy Corporation (NYSE:BTU), as well as Arch’s reaffirmation that it would continue to pay a quarterly dividend of $0.03. My thinking here is, “Why would Arch Coal pay a quarterly stipend if it was concerned about its cash flow?” Investors see this as a sign of confidence on Arch’s part and gobbled up shares over the past week.
This week’s loser
With the markets trending generally higher over the past week and change, there were too many big moves to the downside. But if there must be a loser, biotechnology firm Dendreon Corporation (NASDAQ:DNDN) will take the crown with a 2.6% retracement. Although no company-specific news has been announced since it received a positive opinion with regard to Provenge in the EU from its panel, investors could be reacting to the reality that another loss is on the way this quarter and even a European approval for Provenge wouldn’t spell immediate relief for the struggling Dendreon.
Also in the news …
Let’s not sugarcoat this one iota: It was a really busy week for earnings news, with network equipment maker QLogic Corporation (NASDAQ:QLGC), printing and IT specialist Xerox Corporation (NYSE:XRX), and telecommunication services provider Orange SA (ADR) (NYSE:ORAN) all reporting results.
Xerox Corporation (NYSE:XRX) delivered an even more impressive second-quarter earnings beat in my eyes, with a profit of $0.27 per share compared with the Street’s expectation of just $0.24 in EPS. In spite of just a 1% increase in revenue to $5.4 billion, the big story here is its ongoing restructuring efforts, which are placing more emphasis on the service side of its business — health-care processing and tollbooth operating, for instance. This segment now accounts for 55% of its total revenue and is relatively non-cyclical and recurring. Perhaps best of all, Xerox reiterated its full-year EPS forecast of $1.09-$1.15 and is projecting $2.1 billion to $2.4 billion in operating cash flow. I’ve said it before, and I’ll say it again: I like what I see from Xerox!
Finally, we had Orange SA (ADR) (NYSE:ORAN) (formerly France Telecom) reporting, and I knew heading into its first-half earnings report that things wouldn’t be pretty. During the first half, Orange gained 244,000 net new subscribers, but it struggled to get existing and new customers to pay more, with average revenue per user dropping by 12.1% compared with the year-ago period. Overall net income also fell by 38%. However, despite the negativity, operating cash flow isn’t nearly as dire as some investors had expected, with the company predicting a drop from 2012’s $10.5 billion to a figure of more than $9.3 billion, according to Orange’s management. The allure of Orange has been its impeccable cash flow all along, and that doesn’t seem all too disturbed by tougher competition within Europe.
It’s also worth mentioning that we’re a bit heavier in the dividends receivable column, having collected quarterly payouts from both Staples and Dell.
We can do better
As has generally been the case with a market that refuses to go lower, a portfolio composed of deeply discounted and contrarian names isn’t going to be a top performer. Although I again managed to add a few more dollars than the last time we looked, the S&P 500 beat me by 0.3%! I continue to believe that this is a portfolio that will outperform over the long run, but I also would love to see the market going up every day, as it’d give my contrarian names a chance to shine.
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.
Fool contributor Sean Williams owns shares of QLogic, Dell, Skullcandy, and Orange, but he 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.
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