The Basic Needs Portfolio

The Basic Needs Portfolio

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.

Earnings reports
Even the Basic Needs portfolio can take a break from dividend payments for one week to focus on the real long-term driver for these10 companies: their bottom-line results. Last week three companies reported their quarterly results.

Perhaps no report was more exciting than that of automaker Ford , which rode right over Wall Street's $0.37 earnings-per-share expectations with a $0.45-per-share profit and bumped up its full-year guidance on the heels of stabilizing European sales and rapid growth in Asia. This quarter represented the first combined profit outside of North America in nine quarters. Ford saw its market share improve to 4.3% by quarter's end in China and delivered wholesale revenue growth of 16%. Ford's mixture of sleek styling, reasonable pricing, and fuel-efficient EcoBoost engines is really clicking with consumers around the world. With an incredible leader at the helm, CEO Alan Mulally, I see no reason why Ford won't continue to motor higher.

Residential real-estate investment trust AvalonBay Communities reported third-quarter results on Wednesday and, like Ford, managed to top expectations. Overall, diluted funds from operations, or FFO -- a measure of residential-REIT performance that excludes property sales and depreciation -- fell to $1.18 per share from $1.44 in the year-ago period but topped expectations by $0.01. More importantly, net FFO to shareholders improved 9.4% to $153.4 million from the prior year. If there was one downside, AvalonBay forecast fourth-quarter FFO of $1.54 to $1.60 per share, which is below the $1.64 Wall Street was expecting. This could be due to the recent drop in lending rates, which are at a four-month low, giving potential home-buyers a reason to buy a home and stop renting. I would still suggest it's only a matter of time before lending rates rise to normalized levels, which should only serve to dramatically boost AvalonBay's pricing power.

Consumer products behemoth Procter & Gamble also held the line and met Wall Street's criticisms head-on. For the quarter, P&G delivered revenue growth of 2.2% to $21.2 billion, which topped estimates by about $160 million as organic sales growth jumped 4%. It also managed to hold or improve its market share in two-thirds of its best-selling product categories. On the EPS front, P&G reported $1.05 in adjusted profit, meeting expectations, and once again stood by its forecast for 5% to 7% EPS growth in fiscal 2013. Perhaps the one head-scratcher in P&G's report was the absence of CEO A.G. Lafley on the conference call. Aside from that, it was a solid quarter.

Lighting it up
NextEra Energy
subsidiary Florida Power & Light made waves earlier last week when it successfully completed a test on its first of three natural-gas turbines at the Riviera Beach Next Generation Clean Energy Center. It's a mouthful of a name, but this new $1 billion investment will use a third less fuel per megawatt-hour when completed and will be capable of producing 1,250 megawatts of electricity, which can power up to 250,000 households. The project is set for completion by mid-2014. Although alternative-energy projects are costing NextEra a lot up front, the company will benefit with noticeably lower long-term energy costs than its peers. That, in turn, may actually result in cheaper energy costs for NextEra customers.

Thank you. May I have another?
All eyes may be on Chevron's enormous liquid-natural-gas assets off the coast of Australia, but it was news out of Canada last week that helped to modestly energize shares. Chevron announced late in the week that it had completed exploration of the Duvernay shale in west-central Alberta, Canada, and determined that it could yield 7.5 million cubic feet of natural gas per day, as well as 1,300 barrels of condensate. Ultimately, that's not a lot compared to what Chevron already delivers on an annual basis, but it does speak to the company's global reach.

Back to basics
It was a week of equal gains for both the Basic Needs portfolio and the S&P 500 -- 0.9% each! Key here were solid results from Ford, AvalonBay, and P&G. With the exception of Ford, which is burning rubber, many of these companies aren't meant for double-digit growth. Therefore, any time I see 4% organic sales growth from P&G and 9.4% FFO growth from AvalonBay, I'm very encouraged about the future for these companies. It's still early days for this three-year experiment, but the dividends are rolling in, and these companies have held up well during the market's rare dips. I fully expect the Basic Needs portfolio to handily outperform the S&P 500 over the next three years.

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

Your safest path to getting rich
One of the best aspects of basic-needs stocks is that most pay a dividend -- and dividend stocks can make you rich. While they don't garner the notoriety of highflying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of their quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts identified nine rock-solid dividend stocks in this free report. 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 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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Originally published