Has Statoil Become the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Statoil (NYSE: STO  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Statoil.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 6.9% Fail
  1-Year Revenue Growth > 12% 21.4% Pass
Margins Gross Margin > 35% 41.2% Pass
  Net Margin > 15% 10.2% Fail
Balance Sheet Debt to Equity < 50% 45.8% Pass
  Current Ratio > 1.3 1.13 Fail
Opportunities Return on Equity > 15% 26.6% Pass
Valuation Normalized P/E < 20 3.96 Pass
Dividends Current Yield > 2% 4.2% Pass
  5-Year Dividend Growth > 10% 11.7% Pass
       
  Total Score   7 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Statoil last year, the oil company has jumped by two points. Stronger revenue growth and a somewhat healthier balance sheet improved Statoil's score, but the Norwegian company has even more potential for the future.

Statoil may be tucked away in Scandinavia, but it's becoming a global player in energy. The company has found some big discoveries in its home waters in the North Sea and Barents Sea recently. Although Statoil shares the Barents discovery with Eni (NYSE: E  ) and fellow Norse player Petoro, it could still have a truly massive impact on the stock in the long run.

Further afield, the company has been extending its reach. It recently bought shale gas acreage from Chesapeake Energy (NYSE: CHK  ) as well as merging with Bakken player Brigham Exploration. Statoil also won exploration rights to Angolan deepwater fields, joining Total (NYSE: TOT  ) in gaining exposure to the region, which could have the same potential as the rich oil fields off the coast of Brazil. And in the Arctic, Statoil signed an agreement with Chevron (NYSE: CVX  ) to explore the Beaufort Sea off Canada's northwestern coast.

For Statoil to reach perfection, it really only needs higher margins that could come from sustained oil prices above $100. With its oil fields growing in potential, sales growth should naturally follow in time. That makes Statoil an attractive way to play energy going forward.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

If you like energy, we've got another stock idea that you really need to take a look at. Read about it right here in the Motley Fool's special free report on the energy industry and its best prospects.

Click here to add Statoil to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Chesapeake Energy, Statoil, Chevron, and Total. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


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