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.


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.

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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information