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 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 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 the Christmas holiday last week, major news was a bit more difficult to come by than usual. However, five stories still stood out above the rest.

Show me the money
I'll start off with the lone dividend story of the week. On Friday, residential real-estate investment trust AvalonBay Communities went ex-dividend, removing $1.07 from its share price, which will be paid out to shareholders on Jan. 15. As a REIT, AvalonBay is required to pay out at least 90% of its earnings in the form of a dividend, so it makes for a fairly steady income-producer. Furthermore, with the Federal Reserve finally beginning tapering, the prospect that lending rates could rise -- which in turn would give rental-property owners better pricing power -- just improved as well.

Can I get an upgrade?
The most unstoppable force in the Basic Needs Portfolio, payment processing facilitator MasterCard , continues to be a juggernaut, receiving an upgrade from hold to buy from Zacks. The research firm issued its upgrade based on MasterCard's improved cash flow and most recent capital actions (most likely in reference to its plans to raise its dividend by 83% and initiate a $3.5 billion share repurchase program). I believe MasterCard has a multidecade double-digit growth opportunity within its grasp, with much of the world still conducting transactions using cash. That said, I would consider any weakness in MasterCard's share price a potential buying opportunity.

Taking count
You might often ignore macroeconomic data, but it played a big role in the rallies of oil giant Chevron and hospital and outpatient rehabilitation center operator Select Medical this past week.

For Chevron, crude-oil inventories fell last week by 4.73 million barrels, marking a fourth straight week of declines, which helped push West Texas Intermediate back above the $100-per-barrel mark. According to Energy Information Administration data, crude inventories have dropped by 23.8 million barrels over just the past month. When you couple that drop with higher energy usage due a cold winter you get the perfect recipe to bring Chevron out of its recent slump. While Chevron's refining profits may lag, a WTI price above $100 per barrel is great news for shareholders and its exploration and production profits.

Select Medical spiked higher yet again last week despite being downgraded on Dec. 23 by Standpoint Research to hold from buy. The reason is likely the late-week news that Obamacare enrollments on the federally run hit nearly 1 million in the month of December. As expected, enrollments spiked as the cutoff date approached for those who want health-insurance coverage beginning Jan 1. These enrollees are welcome news for Select Medical, as more insured people being treated means fewer uninsured and underinsured revenue write-offs.

One company's pain is another's gain
Finally, shareholders in Ford got a late-week optimism bump (which partly made up for the stock's disappointing price action last week) when General Motors announced that it would recall 1.5 million vehicles in China to replace a faulty fuel-pump bracket. Ford has also dealt with its own share of faults, including the recall of 81,000 Kuga crossovers, but the enormity of General Motors' recall across two best-selling brands in China between 2006 and 2012 could give Ford the opportunity it needs to gain even more market share on GM in the world's fastest-growing auto market.

Back to basics
Despite last week's mammoth market gains, the Basic Needs Portfolio, thanks to strong gains from MasterCard and Select Medical, held strong and fractionally outperformed the broad-based S&P 500 for the week. This portfolio of cash cows, though, wasn't built for a single week's outperformance, but rather a steady outperformance over the long run. If at some point the market stops going straight up, this portfolio should be primed to handily outperform.

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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, General Motors, 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