NextEra Energy Brightens Up While Chevron Takes a Spill

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 has fared since we began this experiment.

Company

Cost Basis

Shares

Total Value

Return

Waste Management 

$42.60

23.24

$970.97

(1.9%)

Intel 

$23.22

42.64

$1,046.39

5.7%

NextEra Energy

$87.94

11.26

$1,035.13

4.5%

MasterCard

$64.557

15.30

$1,157.90

17.2%

Chevron

$124.95

7.93

$885.23

(10.7%)

Select Medical 

$8.96

110.49

$1,193.29

20.5%

Ford

$17.50

56.57

$846.29

(14.5%)

American Water Works

$43.13

22.96

$977.41

(1.3%)

Procter & Gamble 

$81.29

12.18

$933.23

(5.7%)

AvalonBay Communities

$133.95

7.39

$912.67

(7.8%)

Cash

   

$0.88

 

Dividends receivable

   

$130.78

 

Total commission

   

($100.00)

 

Original Investment

   

$10,000.00

 

Total portfolio value

   

$10,090.17

0.9%

S&P 500 performance

     

4.3%

Performance relative to S&P 500

     

(3.4%)

Source: Yahoo! Finance, author's calculations.

As you may have suspected with earnings season dominating the headlines over the past week, earnings reports were a big reason some companies popped while other dropped in the Basic Needs Portfolio last week. Let's have a look at the week's mixed results.

What's popping?
On Wednesday, residential real-estate investment trust AvalonBay Communities (NYSE: AVB  ) reported its fourth-quarter results, which included a 45% increase in net revenue to $124.2 million primarily due to the Archstone acquisition, as well as a 64% increase in EPS to $1.95 as funds from operations (the more important figure for REITs) increased to $1.51 from $1.27 in the year-ago quarter. Adjusted for nonrecurring items, FFO rose 15% to $1.62. Average rent rates for the quarter improved an impressive 3.8% around the U.S. despite a slight decline in economic occupancy of 0.3% as interest rates fell and encouraged renters to purchase a home. If you weren't already convinced that this was a solid quarter, Avalon also announced an 8.4% increase to its quarterly dividend to $1.16 from $1.07, pushing its annual yield to 3.8% as of Friday's close. 

Another big winner this week was alternative-energy-focused electric utility NextEra Energy (NYSE: NEE  ) , which reported its fourth-quarter results on Tuesday. For the quarter, NextEra's adjusted EPS dipped to $0.95 from $1.03 in the year-ago quarter as net revenue increased to $3.63 billion. While these results didn't exactly brighten shareholders' days initially, NextEra's 2014 forecast flipped the "on" switch and had investors pushing NextEra to a fresh 52-week high. Looking ahead, NextEra is forecasting EPS from $5.05 to $5.45, and it anticipates EPS growth through 2016 of 5% to 7% annually. In addition to NextEra's fourth-quarter earnings report, TRC Capital has made a tender offer to acquire up to 2 million shares of NextEra's common stock at $85 per share -- a discount to NextEra's current price -- which prompted NextEra's board to reject TRC's mini-tender offer.

What's dropping?
On the other end of the spectrum is integrated oil and gas company Chevron (NYSE: CVX  ) , which had a miserable day Friday after reporting a 32% decline in its fourth-quarter profits as production fell 3% and refining earnings dipped 58%. The weak earnings weren't a surprise, as Chevron had warned investors that a weak quarter was on its way just weeks ago, but the simple fact that it now only expects production to increase by 1% in 2014 has investors skittish about any sort of rebound occurring in Chevron's stock this year. While I'd agree that Chevron's results are disappointing, I also wouldn't give up on the company just yet, as it's a cash flow juggernaut, and it wouldn't take much of an upward change in commodity prices to positively impact Chevron's bottom line.

Also getting that sinking feeling this past week was credit payment processing facilitator MasterCard (NYSE: MA  ) , which dove briefly on Friday after reporting fourth-quarter revenue of $2.13 billion, a 12% increase from the year-ago period, and adjusted net income that rose 13% to $0.57. Unfortunately, Wall Street had been looking for $0.60 in fourth-quarter EPS, marking, as my Foolish colleague Jeremy Bowman pointed out, just the second time in eight years that MasterCard has missed the Street's EPS estimates. I would suggest any downside movement in MasterCard is a reason to celebrate since it gives investors another chance to get in on one of the few large-cap companies with double-digit multi-decade growth potential. With much of the world still dealing with cash, MasterCard still has a moat of economic opportunity on the horizon.

Show me the money!
Although we didn't receive any dividend payments this week, we did have two companies go ex-dividend, meaning a dividend payment is pretty much right around the corner. Those two companies are water utility American Water Works (NYSE: AWK  ) , which will pay out $0.28 per share on March 3, and automaker Ford, which recently boosted its dividend to $0.125 and will pay out its quarterly stipend on the same day as American Water Works. American Water Works was one of the few bright spots in this portfolio last week, and it should remain an in-demand defensive name if market volatility remains high.

Back to basics
There's little denying that it was a rough week for this portfolio, with Chevron's earnings report disappointing investors and MasterCard getting a rare decline from shareholders. However, this portfolio also demonstrates its resiliency during these incredible volatile markets by having other sectors and companies pick up the slack, such as the utilities sector (NextEra Energy and American Water Works). Built for the long haul, I see no reason to believe this group of basic necessity providers won't handily outperform the S&P 500.

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