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The Basic Needs Portfolio

http://www.fool.com/investing/general/2013/11/04/the-basic-needs-portfolio.aspx

Sean Williams
November 4, 2013

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 and bear markets, as well as command 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

$1,015.36

2.6%

Intel 

$23.22

42.64

$1,037.43

4.8%

NextEra Energy

$87.94

11.26

$992.46

0.2%

MasterCard

$645.57

1.53

$1,128.34

14.2%

Chevron

$124.95

7.93

$935.82

(5.6%)

Select Medical

$8.96

110.49

$950.21

(4%)

Ford

$17.50

56.57

$955.47

(3.5%)

American Water Works

$43.13

22.96

$981.77

(0.9%)

Procter & Gamble

$81.29

12.18

$988.41

(0.2%)

AvalonBay Communities

$133.95

7.39

$929.00

(6.2%)

Cash

   

$0.88

 

Dividends receivable

   

$64.48

 

Total commission

   

($100.00)

 

Original investment

   

$10,000.00

 

Total portfolio value

   

$9,979.63

(0.2%)

S&P 500 performance

     

3%

Performance relative to S&P 500

     

(3.2%)

Source: Yahoo! Finance; author's calculations.

Earnings galore
In the midst of earnings season, four quarterly reports highlight the most pertinent news over the past week.

Starting the week off on a positive note, refuse and recycling giant Waste Management (NYSE: WM) reported better-than-expected third-quarter results before the bell on Tuesday. For the quarter, Waste Management saw its revenue climb just less than 5% to $3.62 billion as net income grew 30% to $291 million, or an adjusted $0.65 in EPS. By comparison, the Street had forecast EPS of just $0.62. Overall, Waste Management improved its gross margin by 150 basis points as its collection and disposal yield improved for a fifth straight quarter to 2.3%. Waste Management is still struggling with lower metal-recycling rates, but its notably improved collection and disposal yield allowed it to raise its free-cash-flow forecast for the remainder of the year by $100 million to a range of $1.2 billion to $1.3 billion. I see no red flags in Waste Management's report that higher metal prices wouldn't cure.

Payment processing facilitator MasterCard (NYSE: MA) also continued its streak of crushing analysts' estimates on Thursday when it reported its third-quarter results. During the quarter, MasterCard managed to deliver 16% revenue growth to $2.22 billion as net income jumped 14% and adjusted EPS climbed 18% to $7.27 -- $0.33 higher than the consensus estimates. Cross-country process transactions (i.e., those outside the U.S.) were the big story here with overall growth of 19%. A 21.9% increase in debit card purchasing volume outside the U.S. was another major growth-driver. With the majority of the world's transactions still being conducted in cash, MasterCard has what I see as a multidecade opportunity to grow at double-digit rates and hit its many untapped markets.

Also on Thursday, hospital and outpatient rehabilitation center operator Select Medical (NYSE: SEM) reported a 1.3% increase in revenue to $722.8 million despite the fact that a 2% drop in Medicare reimbursement rates became effective earlier this year. But the reduction in reimbursement rates did hamper Select Medical's net income, which fell by 3.3% from the year-ago period to $23.3 million. On an adjusted basis, Select Medical's quarterly EPS of $0.17 missed the Street's expectations by $0.02, but the company was able to reaffirm its prior full-year guidance, much to the delight of existing shareholders. The transition into Obamacare is certain to come with some bumps, but the expected boost in insured patients, which should reduce Select Medical's doubtful revenue, is well worth the slight reduction in Medicare reimbursement rates.

Finally, on Friday the nation's leading alternative-energy electric utility, NextEra Energy (NYSE: NEE), reported its third-quarter results -- and let's just say it was a nice way to end the week! For the quarter, NextEra reported profit growth of 68% as its adjusted EPS improved to $1.64 from $0.98 in the year-ago period. Revenue also improved 14% to $4.39 billion. Although revenue was a smidge below estimates of $4.42 billion, NextEra's EPS crushed expectations by $0.25. Furthermore, NextEra guided its fiscal 2013 forecast toward the high end of its previous estimates and introduced EPS projections of $5.05 to $5.45 next year. Although alternative energy investments cost a small fortune upfront, NextEra will be set up for lower long-term energy costs than most of its peers over the next decade.

Motoring on
It wasn't earnings time for Ford (NYSE: F), but the automaker impressed nonetheless by reporting that its retail sales for October jumped by 14% --