Aug. 24 (Bloomberg) -- The Sane Portfolio lived up to its name and its mission in the past year.

Sane Portfolio V, published a year ago, returned 21 percent from Aug. 19, 2003, through Aug. 20, 2004, including dividends. Nine of its 12 stocks rose, and it beat the Standard & Poor's 500 Index, which returned 11 percent.

The best gainer in the past year was American Eagle Outfitters Inc. (AEOS), a clothing retailer based in Warrenville, Pennsylvania. It was up 101 percent. Next best was a 53 percent gain by Occidental Petroleum Corp. (OXY). The biggest loser was Superior Industries International Inc. (SUP), which declined 30 percent.

Created in 1999 and freshened up each August since then, the Sane Portfolio always contains a dozen stocks. It is intended as a middle-of-the-road investment portfolio that can provide good investment returns without keeping you up at night worrying.

Here are results from the previous four Sane Portfolios. Figures are total returns including dividends, based on weekly prices.

Sane Portfolio I, if held for five years, returned 68 percent compared with a loss of 12 percent for the S&P 500.

Sane Portfolio II, if held for four years, returned 81 percent vs. a loss of 22 percent for the S&P.

Sane Portfolio III, if held for three years, returned 32 percent. The index was down 2.5 percent.

And Sane Portfolio IV, if held for two years, was up 51 percent, contrasted to a 21 percent gain for the S&P.

The Criteria

To get into the Sane Portfolio, a stock must meet seven standards:

--- Market value over $1 billion.

--- Debt less than stockholders' equity.

--- Earnings growth averaging at least 5 percent during the past five years.

--- Return on equity of at least 10 percent in the latest fiscal year.

--- Stock price less than 18 times earnings.

--- Stock price less than 3 times revenue.

--- Stock price less than 3 times book value (assets minus liabilities per share).

Within the field of qualifying stocks, I use judgment to select the portfolio members. Once a stock is in, it stays unless it violates one of the seven standards.

Seven Repeats

This year, seven of the 12 Sane Portfolio members will be making repeat appearances.

Occidental Petroleum, an integrated oil company based in Los Angeles, makes its third appearance. It earned 21 percent on equity in 2003, and sells for only 11 times earnings.

Outback Steakhouse Inc. (OSI) returns for the fifth straight time. It has achieved 12 percent earnings growth and 14 percent sales growth, on average, the past five years.

Homebuilder Ryland Group Inc. (RYL), out of Calabasas, California, returns for a third outing. It gained 30 percent in the past year. Everyone hates homebuilding stocks now, for fear of rising interest rates. I think this stock may surprise the skeptics.

Fidelity National Financial Inc. (FNF), a title insurer from Jacksonville, Florida, makes a second appearance after posting a 40 percent gain.

Medical Products and Trucks

Bio-Rad Laboratories Inc. (BIO) is back for a second try, even though it lost 0.9 percent in the past 12 months. The Hercules, California, company makes products used for medical research and testing. It conducts most tests for mad cow disease in Europe and Japan.

I'm happy to note the return of Oshkosh Truck Inc. (OSK), an Oshkosh, Wisconsin, maker of fire engines, military transport vehicles and cement mixers. I own Oshkosh Truck personally and for clients. In the past year it gained 33 percent in its maiden flight in this portfolio.

Hilb, Rogal and Hobbs Co. (HRH), an insurance brokerage firm with headquarters in Glen Allen, Virginia, is back for a second time.

Five Newcomers

The other five members from August 2003 are kicked out, and will be replaced by new stocks.

After doubling in the past 12 months, American Eagle won't fly in this portfolio in the coming year. Shares of this Warrenville, Pennsylvania, retailer have become too expensive compared with earnings and book value.

Superior Industries is discharged from the Sane Portfolio because its market value has shrunk to $833 million. Electronic Data Systems Corp. (EDS) and SBC Communications Inc. (SBC) failed the earnings-growth test. General Dynamics Corp. (GD) has edged over 3 times book value. I own EDS for many clients and General Dynamics for some.

Thus, I have the opportunity to fill five slots in the Sane Portfolio VI.

I'll give one slot to Fair Isaac Corp. (FIC), a Minneapolis company that makes credit-scoring software and other business software. In the past five years it has averaged 35 percent earnings growth on 21 percent sales growth.

Next, I'll drink to Adolph Coors Co., (RKY), a Golden, Colorado, brewer that sells beer under the names Coors, Blue Moon, Keystone and Winterfest. Coors has shown 21 percent average annual earnings growth the past five years.

Drugs, Linen and RVs

Welcome also to Watson Pharmaceuticals Inc. (WPI), a Corona, California, drug company that makes both generic and proprietary drugs. Its specialties include women's health, dermatology, neurology and psychiatry.

For the fourth slot, I'll go with for Linens `N Things Inc. (LIN), a housewares retailer based in Clifton, New Jersey. One thing I like about the company is that its balance sheet is clean as, well, a new sheet, with nary a speck of debt.

Also debt-free is Thor Industries Inc. (THO) of Jackson Center, Ohio, a maker of recreational vehicles. High gasoline prices and rising interest rates may hurt it this year, yet I like it for the long term.

To contact the writer of this column: John Dorfman in Newton Centre, Massachusetts jdorfman@bloomberg.net.

Last Updated: August 24, 2004 00:05 EDT