Waste Management Delivers a Filthy Earnings Beat, While Ford Shareholders Hit the Brakes

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!

Apr 28, 2014 at 6:35PM

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.


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

Considering how volatile of a week it was, I'm pleased overall that the Basic Needs portfolio was able to perform in line with the S&P 500. As always, this isn't a week-to-week competition, but rather a marathon. Thus far the dividends have really made a difference, canceling out our commissions and boosting the portfolio's value beyond that of the S&P 500's performance, at least for the time being.

The big news this week had to do with first-quarter earnings reports -- and let's just say there were plenty to choose from!

Filthy good results
On Thursday, refuse and recycling giant Waste Management (NYSE:WM) dazzled Wall Street with a better-than-expected first-quarter report. For the quarter, Waste Management delivered revenue of $3.4 billion -- a nearly 2% year-over-year increase -- as its yields increased and its cost decreased. Operating margin also increased 140 basis from its adjusted Q1 2013 results and yielded an adjusted profit of $0.49, up nicely from the adjusted $0.40 in EPS reported last year. By comparison, Wall Street was anticipating just $0.44 in EPS on $3.41 billion in revenue.

Weak commodity prices look as if they'll continue to pressure Waste Management's recycling business in the interim, but it's clear that its operating efficiency is improving, and its refuse-service pricing power remains top-notch.

Home is where the profits are
After the closing bell on Wednesday, residential REIT AvalonBay Communities (NYSE:AVB) delivered results that were more or less in line with the Street's forecasts. For the first quarter, AvalonBay reported a 73% increase in EPS to $1.09 per share and, more importantly, a 110.3% boost to funds from operations. As the company notes, if adjusted for nonroutine items, this year-over-year increase was a more pedestrian but still solid 7.9%. With the exception of the Mid-Atlantic region, where rents fell 0.1%, rental revenue rose in all regions and totaled a 3.8% increase compared to Q1 2013. Economic occupancy dipped a slight 0.1%, but that was more than made up for with higher rental rates.

Looking ahead, AvalonBay forecast second-quarter funds from operations of $1.62-$1.66 per share, which is in line with its first-quarter results. With interest rates likely to rise over the coming years as the Fed cuts back on QE3, AvalonBay's rental pricing power should only increase.

Turning the tide
Early Wednesday morning, consumer goods giant Procter & Gamble (NYSE:PG) delivered another steady quarter of growth with its third-quarter report, signaling that A. G. Lafley's refocusing of the company remains on track. Overall, EPS jumped 5% to $1.04 while organic sales growth improved 3% on net sales of $20.6 billion. But as with most multinationals, Procter & Gamble's results were hurt by negative currency conversions.

For P&G, its fabric care and home care segment provided the biggest boost with a 6% increase in organic volume, followed by health care and grooming, which each grew by 2%. A moderate component to P&G's success was the ability to pass along price increases to consumers, and it looks as if the company is ready to exploit its emerging market growth by raising prices there as well. I can't blame Lafley for focusing on basic-needs price points to drive profits higher. I suspect it will successfully push P&G's profits even higher, but only time will tell.

In addition, P&G went ex-dividend this week with a freshly raised $0.6436-per-share payout -- a 7% increase from its previous dividend. This dividend will be headed shareholders' way on May 15 and marks the 58th consecutive year that P&G has boosted its payout.

A quarterly misfire
Even Wall Street's darlings have off days, and automaker Ford (NYSE:F) certainly had one on Friday when it reported disappointing first-quarter results. During the quarter, profit fell 39% from $1.64 billion, or $0.41 per share in the prior year, to just $989 million, or $0.24 per share. Revenue rose modestly to $35.9 billion, while worldwide unit sales jump notably by 6% to 1.6 million vehicles.

Investors had been warned by previous earnings updates that Ford's profits were likely to stall this year as it introduced a bevy of new models at home and overseas. These new models will likely fuel Ford's growth throughout the rest of the decade, but it means higher advertising and marketing costs up front. Despite the slump, I'd suggest using this dip to get in on the stock, as Ford's market-share gains in China and Europe, coupled with its innovative capacity, make it particularly attractive to long-term investors.

Guilty by association
Lastly, payment-processing facilitator MasterCard (NYSE:MA) was beaten up by investors on Friday after rival Visa reported its quarterly results. Although Visa's net income increased 26% from the year-ago quarter, it was forced to guide its full-year revenue to the low-end of its previous guidance, reflecting concerns that political tensions in Russia could weaken its overseas growth prospects. Because Visa and MasterCard tend to grow in tandem, investors were privy to what they might expect when MasterCard reports. While there could indeed be some short-term implications from sanctions against Russia, my personal opinion that MasterCard can grow by double digits through the remainder of this decade remains unchanged.

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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 Visa and Waste Management.  It also owns shares of Ford, Intel and MasterCard, and recommends 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.

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