Intel Pushes Into Wearables While MasterCard Offers Bonds for the First Time

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!

Mar 31, 2014 at 6:05PM

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

$956.33

(3.4%)

Intel

$23.22

42.64

$1,092.44

10.3%

NextEra Energy 

$87.94

11.26

$1,066.55

7.7%

MasterCard

$64.557

15.30

$1,120.27

13.4%

Chevron

$124.95

7.93

$939.71

(5.2%)

Select Medical

$8.96

110.49

$1,318.15

33.1%

Ford

$17.50

56.57

$874.01

(11.7%)

American Water Works

$43.13

22.96

$1,036.18

4.6%

Procter & Gamble

$81.29

12.18

$971.48

(1.9%)

AvalonBay Communities

$133.95

7.39

$961.66

(2.9%)

Cash

   

$0.88

 

Dividends receivable

   

$198.74

 

Total commission

   

($100.00)

 

Original Investment

   

$10,000.00

 

Total portfolio value

   

$10,536.40

5.4%

S&P 500 performance

     

8.7%

Performance relative to S&P 500

     

(3.3%)

Source: Yahoo! Finance, author's calculations.

Tally another solid performance for the Basic Needs Portfolio, with the overall value ticking higher once again on a week where the S&P 500 ended slightly lower. The basis of this portfolio was that basic needs stocks will provide ample cash flow in both good and bad economic times, giving this portfolio a chance to outperform in any market environment. Although it's losing to the S&P 500 so far, we still have more than two years left before this experiment has played out.

Let's have a look at some of the important news events from this past week.

Show me the money!
As usual, we'll begin with dividend stories, as dividend income is a major driver that I believe will push this portfolios' performance well ahead of the S&P 500. Although we didn't add to our dividends receivable this week, residential REIT AvalonBay Communities (NYSE:AVB) went ex-dividend late last week in expectation of a $1.16-per-share payout on April 15 for shareholders on record as of March 31. This payout is actually an 8.4% improvement over its previous quarterly stipend and it's being fueled by high occupancy rates and incredible rental pricing power, which should only improve as QE3 is wound down and lending rates adjust upward.

Chevron adds to its geographic diversity
On Wednesday, Myanmar awarded 13 multinational oil companies 20 exploration blocks off its southern and western coasts, including a shallow water block that went to Chevron (NYSE:CVX). Investors will want to keep in mind that just because Chevron was awarded this block doesn't ensure success in this region as these large-scale award platforms can be very hit-and-miss. However, investors should also understand that Chevron has nearly two dozen fields off the coast of Australia and is staking a gigantic claim in Southeastern Asia. Because of its vertically integrated business diversity, I'd still suggest digging deeper into Chevron even after its latest bounce.

A MasterCard first
In a first for payment-processing facilitator MasterCard (NYSE:MA), it announced on Wednesday that it had sold $1.5 billion worth of bonds in an effort to improve its financial flexibility in a low interest rate environment. The deal entailed $500 million in five-year bonds yielding 2% and $1 billion in 10-year notes yielding 3.375%. Although MasterCard didn't really hint at any specifics, this cash could be used to make an acquisition or it may serve the purpose of expanding its infrastructure in emerging markets where it has a genuine chance of outperforming Visa over the coming decade. Either way, investors shouldn't freak out too much about its bond offering, as it has more than ample cash to repay its debt if need be.

Alan Mo-moola
On Friday, we learned that automaker Ford (NYSE:F) had paid CEO Alan Mulally an additional 10.7%, or $23.2 million, in 2013. Mulally's salary remained constant at $2 million, but his bonuses and stock option awards rose to $5.9 million and $14.6 million, respectively. Mulally was in line to receive this bonus primarily due to Ford's better performance in European markets, as well as its record pre-tax profit of $8.8 billion last year. Some investors would clearly be in favor of a pay cut for Mulally, as CEO pay across multiple industries has gotten out of hand. However, I'm of the opinion that with China's unit volume growing by 67% in February from the same period last year, Ford delivering record profits in 2013, and the dividend hitting a 13-year high, practically no compensation package is too high for Mulally.

Intel pushes into wearables
Finally, in what might be the most exciting under-the-radar news of the week, chipmaker Intel (NASDAQ:INTC) completed its acquisition of health and wellness wearable device maker Basis Science for what TechCrunch estimates was $100 million, although Intel never disclosed the purchase price. The Basis band, which is the primary product garnering Intel's attention with this purchase, is one of the most advanced health-tracking devices, capable of monitoring and analyze sleep patterns and motion, heart rate, and skin temperature to name a few things. The Basis band is also compatible with most Android devices and all Apple iOS devices via Bluetooth. The move demonstrates Intel's willingness to step outside the box as PC sales decline, and its sets the company up for next-generation device growth.

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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 Apple, Ford, Intel, MasterCard, Visa, and Waste Management. It also 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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