The Basic Needs Portfolio

In May, I announced my intention to create a portfolio that embodied life's basic needs. To that end, over a period of 10 weeks I detailed 10 diverse companies that I think will outperform the broad-based S&P 500 over a three-year period because of their ability to outperform in both bull and bear markets, as well as command incredible pricing power in nearly any economic environment.

If you'd like a closer look at my reasoning behind each selection, just click on any, or all, of the following portfolio components:

Let's look at how our portfolio of basic-needs stocks fared last week.


Cost Basis


Total Value


Waste Management










NextEra Energy















Select Medical










American Water Works





Procter & Gamble





AvalonBay Communities









Dividends receivable




Total commission




Original investment




Total portfolio value




S&P 500 performance



Performance relative to S&P 500



Source: Yahoo! Finance, author's calculations.

Although it was mere days before Christmas, the Basic Needs Portfolio had a busy week, with two companies updating their outlooks, one making a purchase, one possibly planning an overseas operational reorganization, and another putting more money in our pockets.

Show me the money
Because we all like free money, let's start off with Waste Management's (NYSE: WM  ) $0.365 dividend paid to shareholders on Friday. Waste Management's business has come under fire from investors recently because its recycling operations, which rely on sustainably high metal prices to produce the best margins, have struggled. However, I'd point to the fact that Waste Management's refuse collection yield is higher than it's been in years, and that it maintains strong pricing power that can be used to raise prices well beyond the rate of labor and maintenance inflation, as all the more reason to believe it can power higher.

Looking ahead
Earnings guidance was also a big deal this week, but the two companies offering guidance were a mile apart.

Water utility giant American Water Works (NYSE: AWK  ) on Tuesday reaffirmed its fiscal 2013 guidance, which calls for earnings per share of $2.17-$2.22, and introduced fiscal 2014 guidance of $2.35-$2.45 per share, or nearly 10% year-over-year growth. American Water Works has completed 15 generally smaller acquisitions in 2013 and has had little trouble integrating them into its growing water and wastewater network. Given my personal expectations of lower capital expenditures in 2014 for American Water Works, I'd say this is an easily achievable EPS goal.

On the other hand, automaker Ford (NYSE: F  ) hit the brakes by calling for $8.5 billion in net profit in fiscal 2013 -- a modest improvement over fiscal 2012 -- but cautioning that it would only net a profit of $7 billion to $8 billion next year. That shortfall clearly didn't sit well with investors, as Foolish auto guru John Rosevear noted; however, it's likely forgivable, as the cost of launching up to 16 new brands in North American markets in 2014 is what's ultimately reducing profit. If you recall, Ford needed to spend heavily in order to make a dent in China's burgeoning auto market, and that investment is paying huge dividends now. I agree with John that this dip could be the perfect opportunity for fence-sitting investors who have been waiting for a good time to buy into Ford.

An early holiday season
I certainly remember being impatient around Christmastime when it came to opening my presents, and apparently chipmaker Intel (NASDAQ: INTC  ) feels the same way. Intel announced last week that it was purchasing the wireless infrastructure assets of Mindspeed Technologies for an undisclosed sum. The deal is expected to close sometime in February and will add signal-processing technologies to Intel's already impressive hardware portfolio, allowing it to further entrench itself in consumer and enterprise networking infrastructure.

A reorganization in the works?
Finally, consumer staples giant Procter & Gamble (NYSE: PG  ) could be looking to reorganize its overseas operations, three unidentified people familiar with the matter said in a Bloomberg report. This reorganization would include a potential merger of its Western European business with its Central and Eastern European operations, as well as the merger of its Middle East and Africa operations to form another group. The deal isn't expected to be announced until 2014 but could help reduce costs and improve operating efficiency if enacted.

Back to basics
It was another big week for the S&P 500, which raced ahead to another new high. The Basic Needs Portfolio nearly kept pace with big gains from MasterCard and Select Medical, but it was ultimately done in by Ford's tumble. Over the long run, though, nothing has fundamentally changed that makes me any less confident that these 10 companies will outperform and eventually top the S&P 500.

Is it time to try this tried-and-true wealth-creating strategy before it's too late?
If there's one thing you'll notice about basic-needs stocks, it's that most pay a dividend -- and dividend stocks can make you rich.
While they don't garner the notoriety of highflying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of their quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts identified nine rock-solid dividend stocks in this free report. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

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9/30/2016 4:04 PM
AWK $74.84 Down -0.14 -0.19%
American Water Wor… CAPS Rating: ****
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Intel CAPS Rating: ****
PG $89.75 Up +1.52 +1.72%
Procter and Gamble CAPS Rating: ****
WM $63.76 Up +0.49 +0.77%
Waste Management CAPS Rating: *****