The Basic Needs Portfolio

The Basic Needs Portfolio

In May, I announced my intention to create a portfolio that embodied life's basic needs. Understandably, many of the truly basic needs in our everyday lives have transcended far beyond just the need for water and shelter. 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, and command incredible pricing power in nearly any economic environment.

If you'd like a closer look at what my reasoning was behind each selection, you can do so by clicking on any, or all, of the following portfolio components:

Let's look at how our portfolio of basic needs stocks fared this 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.

It wasn't a particularly good week for this portfolio, or the market in general, so it shouldn't be surprising to see all 10 stocks, and the S&P 500, down this week. With earnings season pretty much out of the way until next quarter, individual stories tended to dominate this week.

Analyst actions
Having arguably the worst week in the portfolio, apartment-community manager AvalonBay Communities received an upgrade to "buy" from research firm Zacks. Specifically, Zacks cited the company's recent earnings beat and boosted funds from operations guidance as a reason why any weakness could represent a buying opportunity. I'm not sure what short-sellers have against AvalonBay here, as vacancies are falling, and the prospect of higher lending rates is only going to drive more people to rent, resulting in even better pricing power.

Intel , on the other hand, was on the short end of Robert W. Baird's whooping stick this week. Baird downgraded both Intel and Micron Technology to "neutral" from "buy" with the expectation that semiconductor orders will be seasonally slow in the second half of the year. Baird is predicting a PC percentage unit decline in the teens and lowered Intel's price target to $23 from $26. While it's no secret that PC sales are sluggish, I'd like to remind investors that Intel has brought in nearly $10 billion in free cash flow over the trailing 12-month period, so there's probably not too much cause to be alarmed.

Dividend news
Although no new dividends were announced this week, shares of oil giant Chevronwent ex-dividend and $1 was deducted out of the share price to reflect a Sept. 10 dividend payment. With oil prices once again peeking back over $100 a barrel, it seems pretty reasonable to expect the dividend boosts to keep coming from Chevron on an annual basis.

It's also worth noting that we have five -- yes, five! -- companies that are currently ex-div, so the losses you see now are going to abate a bit once we hit Aug. 30 through Sept. 10, when those five dividends become payable.

Other news
Resurgent automaker Ford received some potentially promising news on Friday in Europe, where its operations have struggled. According to German auto industry association VDA, registrations of new cars in Europe rose by 4.8% to 1.02 million from the year-ago period. Austerity measures have constrained consumer buying in Europe and sent Ford looking elsewhere for growth opportunities. I'm not sure this is the sign of a change in Europe's trend, but it's a welcome abatement to the weakness we've become accustomed to.

Consumer-products maker Procter & Gamble was also in the news thanks to a big position swap from hedge fund activist Bill Ackman and his fund, Pershing Square Capital Management. In SEC filings released this week, we discovered that Ackman's fund sold off 19 million of its P&G shares during the quarter but purchased an even greater amount of options that would give Ackman's hedge fund the right to purchase up to 25 million shares. Ackman was a big proponent of replacing now former CEO Bob McDonald, and with A.G. Lafley once again at the helm, I believe Ackman is making a bet on steady long-term growth in P&G shares.

Back to basics
As I said, it was a pretty bad week overall. Every stock in the fund was down, and cumulatively these 10 companies underperformed the S&P 500 by 1.7% on the week. However, we're two weeks into what will be a 150-plus-week investing adventure, and there's nothing to signify that the fundamental outlook that brought me to these companies has changed in any way. These companies are built to survive over the long term and through any economic environment, and I fully expect this group of stocks to outperform by double-digits three years from now.

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

If there's one thing you'll notice about basic-needs stocks, it's that most pay a dividend -- and dividend stocks can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

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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, and Waste Management. It also recommends Chevron and Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. 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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