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A Perfect Ten for the coming year

On a scale of 1 to 10, let’s give a 5 to my Perfect Ten Portfolio from a year ago. It returned 21 percent from July 10, 2012, through July 5, 2013.

That sounds quite attractive — until you consider that the Standard & Poor’s 500 index returned 24.5 percent.

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All figures include reinvested dividends.

Published each summer during beach season, the Perfect Ten Portfolio consists of 10 stocks, each of which sell for 10 times the company’s earnings. That compares with a price/earnings multiple of about 15 for the average stock over the years.

In my eyes, cheap stocks are gorgeous.

Among last year’s selections, only one stock actually declined. That was Devon Energy Corp., down 0.01 percent.

But several stocks trailed a hot market. Nature’s Sunshine Products Inc. advanced only 4.9 percent, and Exxon Mobil Corp. only 13.1 percent.

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The best showing was by Cascade Corp., a maker of forklifts and other materials handling equipment. It attracted a takeover offer from Toyota Industries Corp. and rose 33.5 percent.

Last year’s version was the 10th Perfect Ten Portfolio I have compiled, beginning in 2000. On average, they have returned 20.1 percent, including reinvested dividends, compared to 7.8 percent for the S&P 500.

The Perfect Ten list has beaten the S&P six times out of 10 and has been profitable eight times out of 10.

Bear in mind that past performance does not guarantee future results. Performance of my column recommendations is theoretical and does not reflect transaction costs or taxes. And the results from my column recommendations should not be confused with the performance of real-money portfolios I manage for clients.

I’m not discouraged by last year’s showing. And so, back to the beach, dear friends. Here are my latest Perfect Ten selections:

 Adams Resources & Energy Inc. is a small oil-and-gas company in Houston. In the past 10 years, it has turned a profit every year except 2008, and it posted record earnings last year. The company is debt free.

 Agco Corp., based in Duluth, Ga., is a worldwide distributor of agricultural equipment and supplies. It appears to be on track for its second-best year ever in 2013, and analysts look for record earnings in 2014.

 American Railcar Industries Inc., of St. Charles, Mo., builds tank cars and hopper cars. It offers a 3.1 percent dividend yield, and in my opinion there is room to raise the dividend. This year should set an earnings record, and if analysts are right, the company will break that record in 2014.

 Apple Inc. is a controversial stock these days. People who loved it at $700 despise it at $400, even though it is now a better value. The company's products remain in keen demand. It has no debt, and a hoard of $39 billion in cash and short-term investments.

 Duke Energy Corp., with headquarters in Charlotte, N.C., has a good balance sheet for a utility and yields 4.6 percent in dividends. I own it for a few clients who relish dividend income.

 First American Financial Corp., from Santa Ana, Calif., is one of the largest title insurers in the United States. Investors are worried about rising interest rates, which could retard home purchases and refinancing transactions. But I like this stock, which is selling near book value (corporate net worth per share).

 GrafTech International Ltd., based in Parma, Ohio, makes graphite and artificial graphite products used in aerospace, steelmaking, and other industries where strength and resistance to high temperatures are important. It hasn’t had a loss year since 2005.

 Ingram Micro Inc. distributes a wide variety of computer hardware and software. It has razor-thin profit margins. But it has been profitable nine years out of the past 10 and appears headed for record earnings this year and next.

 Leucadia National Corp. is a New York-based conglomerate that buys companies that are on the ropes, tries to fix them, and often sells them a few years later. Its most recent purchase was of Jefferies Group LLC, the brokerage house. In the 15 years through June 30, the stock returned 349 percent, compared to 88 percent for the S&P 500.

 Raytheon Co., of Waltham, is best known as a manufacturer of missiles. It also makes other defense electronics and aerospace products. The battle over the federal budget is a major headwind for this defense contractor, but I think this is a superior company that will reward long-term holders of its stock. I own the shares for a few clients.

John Dorfman is chairman of Thunderstorm Capital in Boston. His firm or its clients may own or trade securities discussed in this column.

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