The Basic Needs Portfolio

A three-year-long experiment intent on showing that life's most basic needs can result in market-beating portfolio gains, hefty dividend income, and a good night's sleep!

Jan 6, 2014 at 6:33PM

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 markets and bear markets, as well as their 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.

Company

Cost Basis

Shares

Total Value

Return

Waste Management 

$42.60

23.24

$1,026.98

3.7%

Intel

$23.22

42.64

$1,099.26

11%

NextEra Energy

$87.94

11.26

$949.89

(4.1%)

MasterCard 

$645.57

1.53

$1,271.14

28.7%

Chevron

$124.95

7.93

$986.10

(0.5%)

Select Medical

$8.96

110.49

$1,229.75

24.2%

Ford

$17.50

56.57

$877.40

(11.4%)

American Water Works

$43.13

22.96

$951.92

(3.9%)

Procter & Gamble 

$81.29

12.18

$979.88

(1%)

AvalonBay Communities 

$133.95

7.39

$885.03

(10.6%)

Cash

   

$0.88

 

Dividends receivable

   

$122.87

 

Total commission

   

($100.00)

 

Original Investment

   

$10,000.00

 

Total portfolio value

   

$10,381,10

3.8%

S&P 500 performance

     

7.1%

Performance relative to S&P 500

     

(3.3%)

Source: Yahoo! Finance, author's calculations.

Even though we just had our second straight shortened holiday week, and news among these 10 stocks was admittedly a bit skimpy, I still uncovered five individual and macro-related events that basic-needs shareholders should have their eyes on.

Ford goes flat
It's been a while since we've said this about U.S. auto sales, but they weren't encouraging in December. Domestic auto sales for the sector missed estimates, causing the seasonally adjusted unit-sales rate to come in at 15.6 million when 16 million had been projected. Ford (NYSE:F) was actually one of the lucky few to see sales creep higher with a 1.8% gain in December to 218,058 cars, but this figure still missed Wall Street's estimates. On the bright side, Fusion sales rose by 27%, and F-Series pickups saw unit sales increase by 8%, but the sudden lack of interest in U.S. vehicles is a bit worrisome over the near term. 

Intel going hybrid?
A rumor from The Verge surfaced late last week that noted chipmaker Intel (NASDAQ:INTC) was going to use the Consumer Electronics Show in Las Vegas as a reason to showcase a PC capable of running on the dual operating systems of Microsoft's Windows and Google's Android. If possible, Intel could gear up its hardware to be the only processor capable of handling a dual OS. Personally, I'll wait until after the weekend instead of speculating too much on these rumors, but Intel's role in mobile processing appears to be growing.

American Water Works goes shopping
In continuing a theme of acquisitions, American Water Works (NYSE:AWK) subsidiary California American Water announced the acquisition of Dunnigan Water Works, which will add nearly 60,000 new customers to its steadily growing portfolio of 600,000 homes. The water utility business isn't one where we often see a lot of organic growth, so acquisitions are a smart way for American Water Works to ensure it maintains pricing power and consistent cash-flow growth. With the company steadfast on its 2014 outlook, which calls for EPS growth of approximately 10%, I'd say American Water Works is primed for another solid year.

Macro news can do wonders
Just as we witnessed last week, even with a lack of company-specific news, macro news can have a big impact on many of these basic-needs companies.

Integrated oil and gas giant Chevron (NYSE:CVX), for example, has to be pleased to see oil inventories down by 7.01 million barrels, marking their fifth straight week of declines. Increasing demand for energy, likely being used to heat homes, could be the primary factor pushing inventories lower, but whatever the case, it's giving Chevron's shareholders hope that oil prices could rise past $100 per barrel in the interim. If this downtrend in inventories doesn't abate soon, that move could pressure Chevron's refining capabilities, but it will likely more than be made up by higher realized prices in Chevron's exploration and production operations.

That same news could also be a boost for electric utility NextEra Energy (NYSE:NEE). Under normal circumstances, lower inventories can lead to higher energy prices, which are often bad news for utilities, who see their expenses rise. Luckily for us, NextEra isn't your typical electric utility. As the nation's leading provider of alternative-energy electricity via wind, solar, hydroelectric, and geothermal sources, NextEra's costs are staying relatively flat while rising expenses could begin to chip away at the profit potential of its peers. NextEra's alternative-energy projects do cost more up front, but they're going to pay long-term dividends for shareholders.

Back to basics
Although the market retraced a bit this week, weakness from big gainer Select Medical did in what otherwise would have been another solid performance. The good news is that this portfolio wasn't geared to topple the S&P 500 on a week-to-week basis, but to outperform over the long run through dividend income and steady cash flow, which should lead to reasonable share price gains. All 10 companies here still look like they're good to go over the long run, meaning I anticipate a strong performance from this group of stocks over the next three years.

Check back next week for the latest update on this portfolio and its 10 components.

Here's why this tried-and-true strategy can make you rich
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.

Fool contributor Sean Williams has no material interest in any 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, and recommends Ford, Google, Intel, MasterCard, and Waste Management. It also owns shares of Microsoft and recommends Chevron and Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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