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%|
|S&P 500 performance||12.6%|
|Performance relative to S&P 500||(8.2%)|
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.
For QLogic Corporation (NASDAQ:QLGC), we knew ahead of time that the results would be bittersweet, with the company taking a charge to restructure its operations and reduce costs. In its fiscal first quarter, QLogic delivered a 13% decline in revenue to $113.1 million, with an adjusted profit of $0.18 per share. The company’s sales figures were more or less in line with estimates; however, EPS was $0.04 better than expected. QLogic saw its biggest revenue drag coming from a 14% drop in its advanced connectivity platforms segment, but it remains well on track to achieve its annual cost-cutting goal of saving $20 million.
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!