Summer is upon us and after pandemic weight gains, few people will rate a “Perfect 10” on the beach this year. But my Perfect 10 Portfolio is ready to show off.
This hypothetical portfolio contains 10 stocks, each of which sells for 10 times earnings. For example, MKS Instruments earned $10.27 a share in profits the past four quarters, and its stock sells for $99.51 a share, so the price/earnings ratio is 9.7, which rounds to 10.
The long-term average price/earnings multiple in the U.S. stock market is about 15, so a ratio of 10 is relatively cheap. And that’s my point. As a partisan of value investing, I’m drawn to cheap stocks.
Perfect 10 Record
The Perfect 10 Portfolio you’re reading about today is the 20th one I’ve compiled. The previous 19 have averaged a one-year return (including dividends) of 19.9%. That clobbers the average one-year return for the Standard & Poor’s 500 over the same periods, which was 9.8%.
Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.
Last year’s Perfect 10 group did poorly. It lost 15.4%, while the S&P lost 9.8%. Big declines in LL Flooring Holdings (LL), Turtle Beach (HEAR) and Zumiez
Will the Perfect 10 Portfolio return to form in 2022-2023? I certainly hope so. Here are ten stocks that make up its new roster.
Cavco Industries (CVCO) produces factory-build homes. Given that there is pent-up demand for houses, and that the average new home is too pricey for many potential buyers, I think this stock is timely. Cavco’s return on invested capital has been above 10% (my preferred zone) six years in a row, and growth has accelerated lately.
Heritage-Crystal Clean (HCCI) offers parts cleaning, used-oil recycling, and waste-disposal services to small and medium-sized businesses. It has been profitable in 13 of the past 15 years, and had a 16% return on invested capital last year. Only six analysts follow it; five rate it a “buy.”
MKS Instruments (MKSI) makes instruments and controls used in a variety of industries. Among its customers are the defense, semiconductor and pharmaceutical industries. It has increased its sales at better than a 16% annual clip for the past decade, and profits have grown faster than sales.
SSR Mining (SSRM) mines for gold and silver in the U.S., Canada and Argentina. I like its low debt level (only 13% of stockholders’ equity). Earnings have been spotty – nine profits and six losses in the past 15 years. But revenue and earnings have been strong lately.
1-800-Flowers.com (FLWS) delivers flowers or food baskets to pretty much anywhere in the country. It has shown a profit 11 years in a row. Seven Wall Street analysts follow the stock, and six rate it a “buy.”
Disclosure: I own Turtle Beach personally and in a hedge fund I run. My firm owns SSR Mining for a couple of clients.