The Basic Needs Portfolio

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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.


Cost Basis


Total Value


Waste Management 










NextEra Energy















Select Medical










American Water Works





Procter & Gamble





AvalonBay Communities









Dividends receivable




Total commission




Original investment





S&P 500 performance



Performance relative to S&P 500



Source: Yahoo! Finance; author's calculations.

With no new dividend data to report this week, we turned our attention to a number of analysts actions, earnings updates, and newly established partnerships.

Analyst moves
It was certainly a big week for analyst moves for a number of these high-profile names. Chipmaker Intel , for instance, was downgraded on Friday by research firm Macquarie to neutral from outperform with a price target set of just $22, which is 5% lower than where Intel finished the week. Macquarie's concerns relate to Intel's product mix constraining earnings as it transitions to cloud-based processors. While I do share some of those concerns and understand that research and development costs have to increase in order for Intel to move into the next generation of products, I feel Macquarie is vastly underestimating Intel's residual cash flow and dominant position in the PC market, which would easily fund this research without a noticeable drop in EPS.

Automaker Ford was on the other end of analyst's comments this week with Zacks upping the company to a strong buy. The impetus is simple: Ford's aggressive growth prospects in China. According to comments from Ford earlier this week, the company is targeting 5% market share in rapidly growing China by the end of the fourth-quarter which would be double its market share at the end of 2011. Ford has done a remarkable job with its styling, its fuel efficiency, and in distancing itself from its European troubles. Of all automakers, it continues to be the lone standout in my opinion.

It was good news as well for consumer products company Procter & Gamble , which was upgraded by Wells Fargo to outperform from market perform early in the week and had its price target upped $6 to $86. The covering analyst noted improved execution, as well as the return of A.G. Lafley, and P&G's focus on emerging markets, as more than enough reasons to be bullish about its outlook. Lafley was largely credited with P&G's impressive brand growth and improved customer loyalty last decade so the hope is with him back on board P&G's bottom line will see accelerating growth once again.

A disappointing update
Looking ahead toward third-quarter earnings, higher oil prices in recent months won't be able to save oil giant Chevron from a projected quarter-over-quarter income decline. On Wednesday, Chevron noted that foreign-exchange losses and significantly weaker refining and marketing profits were going to cause its third-quarter profits to be sequentially lower. One reason for the refining drop was as simple as maintenance. Ongoing costs to run and fix refineries isn't cheap, so costs similar to what Chevron is warning about in the third-quarter should be expected now and then. Overall, though, Chevron is still well positioned with huge liquid natural gas reserves off the coast of Australia and a bounty of oil reserves in the Gulf of Mexico.

Buddying up
Finally, payment processing facilitator MasterCard was a busy bee this week announcing multiple new partnerships and deals to help expand its brand and potentially its bottom line. On Wednesday it announced a global partnership with Eataly; on Tuesday it buddied-up with Middle Eastern retailer Lulu Hypermarket and Auchan Italy; and on Monday it announced that five new merchants had joined its global MasterCard digital wallet platform. These may seem like small deals for MasterCard, but compiled over 52 weeks, year after year, gives MasterCard double-digit growth potential each year for decades to come.

Back to basics
Following a poor showing last week, the Basic Needs portfolio really came back with a vengeance this week. That isn't too surprising to me, as this portfolio is set up to avoid wild swings in the market similar to what the S&P 500 has experienced over the past couple of weeks. Although there is still incredible uncertainty surrounding the ongoing government shutdown, these 10 companies are poised to benefit in practically any economic environment. Given three years, I expect they'll handily outperform the S&P 500 and demonstrate why basic needs companies are so valuable to your portfolio.

Check back next week for the latest update on this portfolio and its 10 components.

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The article The Basic Needs Portfolio originally appeared on

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, Intel, MasterCard, Waste Management, and Wells Fargo. 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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