In today’s higher-tariff world, where political and geopolitical clashes are harsh, you might want to take your stock portfolio’s risk level down a notch.

Perhaps the Sane Portfolio can be of some help. This is a theoretical portfolio, intended to be slightly on the low-risk side of the risk spectrum.

It contains a dozen stocks, and I refresh the list once a year. To get in, a stock must meet seven criteria, described below. Once I choose a stock, it stays in unless it flunks one of the seven criteria.

Over 23 years, the Sane Portfolio has averaged an 11.2% annual return. That slightly beats the Standard & Poor’s 500 Total Return Index, with an average return of 10.8%.

My column results are hypothetical and shouldn’t be confused with results I obtain for clients. Past performance doesn’t predict the future.

My list from a year ago trailed far behind the S&P. It posted a 6.9% return while the index returned 21.9%. My worst performer was Boise Cascade Co. (BCC), down 30%. My best was Monarch Casino & Resort Inc. (MCRI), up 45%.

Seven boxes

To be eligible for the Sane Portfolio, a stock must satisfy seven criteria. No single criterion is especially hard, but few companies can check all seven boxes.

Market value of at least $1 billion. Debt less than stockholders’ equity. Return on stockholders’ equity of 10% or better. Stock price less than 18 times per-share earnings. Stock price less than 3 times per-share sales. Stock price less than 3 times book value (corporate net worth per share). Five-year earnings growth averaging 5% per year or better.

This year, seven Sane Portfolio companies stay on from previous years.

Winning streaks

D.R. Horton Inc. (DHI), the nation’s largest homebuilder, is back for a sixth consecutive year. Many buyers can’t afford a home at today’s mortgage rates. So Horton’s latest year was soggy, but it has grown revenue at a 17% clip for the past decade.

Back for a fifth year is Paccar Inc., which builds heavy trucks (Kenworth and Peterbilt). The latest year has been rough. Companies have been reluctant to spend on trucks amid tariff uncertainty. But Paccar has achieved 11% annual earnings growth in the past decade.

Boise Cascade Co. (BCC) of Boise, Idaho, which makes engineered-wood products and plywood, hangs in there for a fourth year. As noted above, this stock was a dog in the past 12 months. However, the stock looks cheap to me at about 10 times earnings.

After a gain of around 30% in the past 12 months, W.R. Berkley Corp. (WRB) returns for a third engagement. It’s a commercial casualty insurance company based in Greenwich, Conn.

Second-timers

Three companies are in the Sane Portfolio as sophomores. One is EOG Resources Inc. (EOG), a big Houston-based oil and gas producer that emerged from the remnants of the Enron empire. Its profitability is impressive, with a 21% return on stockholders’ equity.

Another sophomore is Academy Sports & Outdoors Inc. (ASO), a chain of sporting goods stores headquartered in Katy, Texas. I’m concerned that it gets a lot of its merchandise from China, so it may be hard-hit by tariffs. If it can stay on this roster another year, I’ll be impressed.

Returning, too, is Photronics Inc. (PLAB), which makes photomasks used in manufacturing semiconductor chips. Profits vary from year to year, but the company, based in Brookfield, Conn., has shown positive earnings 10 years in a row.

Newbies

Five companies dropped out of the Sane Portfolio, giving me five slots to fill.

I’ll start with Axcelis Technologies Inc. (ACLS), based in Beverly, Mass. Like Photronics, it makes equipment for manufacturing semiconductor chips. Its specialty is ion implantation.

Block Inc. (XYZ) operates the Square payments system. Small businesses like its hardware and software, and it’s been growing nicely. Profits have shot up at a 30% annual rate the past five years.

Cactus Inc. (WHD), which makes oil-drilling equipment, is based in (where else?) Houston. I particularly like its balance sheet, with debt only 4% of stockholders’ equity.

Cigna Group (CI), one of the largest U.S. health insurers, has been a stodgy stock. But I think it would hold up well if the market turns rocky. Analysts expect earnings to rise.

Crocs Inc. (CROX) makes casual shoes with holes for ventilation or decoration. It was a fad stock several years ago, rising 104% from mid-2006 to the end of 2007. Now, it seems attractively cheap to me at six times earnings.

Disclosure: I own D.R. Horton for one client.

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