3 "Perfect Stocks" To Buy Today

Nobody is perfect.

While life teaches us the truth of that old saw pretty early on, the opposite can be found to be true in the stock market.

There is a very small subsection of stocks that I defined many years ago as perfect stocks.

These are stocks that have all the qualities I look for in an investment opportunity. I developed this approach a long time ago and have used it consistently to find market-beating stocks for myself, clients, and readers.

Each perfect stock must meet four criteria.

Let me show you what they are, and show you three perfect stocks you can buy today.

First and foremost, these stocks have rock-solid balance sheets. They can survive just about anything the markets and the global economy can throw at them. These companies do not owe a lot of money, and they have more cash and short-term securities on hand than they need to easily operate the business.

Second, they are profitable. Hopes and dreams are nice, but I prefer black ink on the bottom line of the business.

Third, these companies must pay a dividend. It does not have to be the highest dividend ever paid nor does it have to be the fastest growing of all time. It just needs to be a consistent dividend payment.

A dividend makes a statement. It says that I have paid all the bills, everyone’s paycheck cleared, we have what we need to fund and grow the business, and there is some cash left over.

Finally, the stock must trade for less than tangible book value. In simple terms, we add up all the stuff the company owns and subtract everything it owes. What is left is tangible asset value. Divide that by the number of shares outstanding, and if the current stock price is less than that, the stock is considered to be a bargain.

Many so-called "cheap stocks" are cheap for a reason. They are bad businesses. They are companies that will need to sell more equity or debt to stay in business. They may be overleveraged companies that cannot make their payments. They could be companies that have fallen victim to the disruption cycle of progress and are headed for the dust bin of financial history.

The Perfect Stock criteria help us avoid these value traps. A company that meets all the qualifications is a decent business trading at a bargain price.

Owning a collection of these stocks has beaten the market solidly over every time frame for more than two decades.

We further avoid any developing problems by being ruthless in our discipline. If the company becomes unprofitable, we sell it. If they eliminate the dividend, we part company. If they take on too much new debt, we exit abruptly. If they do not have enough cash on hand to pay all the bills, we are out. When the stock trades above book value, we take our profits and move on.

Even during the roaring decade we just experienced with tech stocks leading the way higher, you would have been better off with a portfolio of Perfect Stocks that would have bored you all the way to the bank. You would have outperformed a little bit when the market was moving higher and done much better when the market was weak.

There are not a lot of perfect stocks at any given point in time. On average, over the past 25 years, there have been just nine US-based Perfect stocks at any given time. You would replace one or two each month along the way.

An investor who took the route suggested by professionals and professors over the past 25 years and invested in an index fund would currently have a little over $46,000 in their account. Given all the madness and market crashes and corrections since 1999, that’s not too shabby.

Investors who focused on our Perfect Stock approach would be sitting on a hair over $520,000.

With that in mind, here are three perfect stocks worth considering right now:

Johnson Outdoors (JOUT) is an American company that designs, manufactures, and markets outdoor recreational products. Their products are used for hunting, fishing, boating, and other recreational outdoor activities. It also offers Scuba gear and underwater technology through the SCUBAPRO brand.

The stock is trading at just 76% of tangible book value and yields 3.72%.

Friedman Industries (FRD) is an American steel company headquartered in Longview, Texas. The company was founded in 1965 and specializes in steel processing and pipe manufacturing. Friedman Industries serves various markets including construction, manufacturing, and energy. The company is known for its ability to provide custom-cut lengths and widths of steel products to meet specific customer needs.

Its presence in US oil and gas markets should help drive huge profit gains as expanded oil and gas production meets the massive energy demand of AI and other high-tech developments.

Friedman shares currently trade at 83% of tangible book value and yield 0.77%.

PHX Minerals (PHX) is a natural resource company based in Oklahoma City, Oklahoma. The company primarily focuses on mineral and royalty ownership in oil and natural gas properties. Unlike traditional oil and gas companies, PHX Minerals does not directly engage in drilling or production operations. Instead, it concentrates on acquiring and managing mineral rights.

The company is consolidating smaller owners and operators in the United States and has completed 82 acquisitions to continually increase its oil and gas reserves.

The value of its reserves at current prices is over $8 a share.

77% of its reserves are natural gas, so PHX is well positioned to see soaring prices because of the enormous demand increase expected over the next decade.

PHX Minerals shares are trading for less than book value and less than half the value of its oil and gas reserves. The shares are currently yielding 3.86%.

As exciting as the Perfect Stock Strategy is, there is a way to expand it and allow patient aggressive investors to earn even higher returns.

We will explore that next week.

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