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 s...
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:
Company
Cost Basis
Shares
Total Value
Return
Exelon
$31.25
31.68
$1,096.13
10.7%
QLogic
$11.46
86.39
$815.52
(17.6%)
Dendreon
$5.97
165.82
$654.99
(33.8%)
Dell
$13.37
74.05
$990.05
0%
Staples
$13.48
73.44
$1,114.08
12.5%
Arkansas Best
$10.83
91.41
$1,624.36
64.1%
Arch Coal
$7.03
140.83
$750.62
(24.2%)
Skullcandy
$6.71
147.54
$829.17
(16.2%)
France Telecom
$11.64
85.05
$891.32
(10%)
Xerox
$8.16
121.32
$1,068.83
8%
Cash
$0.06
Dividends receivable
$42.56
Total commission
($100.00)
Original investment
$10,000.00
S&P 500 performance
10.2%
Performance relative to S&P 500
(11.4%)
Source: Yahoo! Finance.
This week's winner Supplanting trucking company Arkansas Best -- which has shot to the moon on takeover speculation and a resolution with its union -- was coal miner Arch Coal . Arch tacked on 7.5% this week following an article from Forbes on Monday that highlighted the company's attempt to forge export partnerships on the West Coast of the U.S. to Asia-Pacific nations like China that have a big demand for thermal coal for electricity-generating purposes. Both India and China are still very early in their industrialization process and the need for coal in these regions is expected to remain robust for at least the next decade, playing perfectly into Arch's strategy.
This week's loser On the other side of the coin was networking equipment maker QLogic , which tanked 4.8% on the week after disclosing that its CEO, Simon Biddiscombe, had resigned on Friday. In the interim, QLogic's CFO, Jean Hu, will be the acting CEO. Anytime the management of a company changes, it provides a level of uncertainty that's bound to unnerve investors. I'd urge current shareholders (of which I'm one) to remember that QLogic has been consistently profitable for years, has $5 in net cash per share, and is poised to benefit from higher infrastructure spending. Patience will pay off here!
Also in the news... In this week's episode of "Dells of our Lives," we were privy to the company's first-quarter earnings results -- and here's a hint: They weren't good. Revenue at Dell's laptop segment sank 16% while overall PC-related sales tumbled 9%. Somehow, thanks to growth in its IT segment, Dell was able to deliver a market-topping $14.1 billion in revenue; however, adjusted EPS was only $0.21, which was well below the $0.35 in EPS the Street was expecting. On the offer front, Dell has requested additional information about Carl Icahn's offer, but it certainly appears, following these results, that current shareholders may be more willing to "talk turkey" if it ensures that a buyout occurs.
The story was somewhat similar for office supply chain Staples , which reported its first-quarter results on Tuesday. But, unlike with Dell, investors seem quite pleased with the company's progress in combating online competition. Even with weakness seen in Europe and Australia during the quarter, Staples held to its full-year EPS forecast and plans to utilize its direct-to-consumer operations as the backbone for its future growth prospects.
