Is Taseko the Perfect Stock?

Everyone would love to find the perfect stock. But will you ever really find a stock that gives you everything you could possibly want?

One thing's for sure: If you don't look, you'll never find truly great investments. So let's first take a look at what you'd want to see from a perfect stock, and then decide if Taseko Mines (AMEX: TGB  ) fits the bill.

The quest for perfection
When you're looking for great stocks, you have to do your due diligence. It's not enough to rely on a single measure, because a stock that looks great based on one factor may turn out to be horrible in other ways. The best stocks excel in many different areas, which all come together to make up a very attractive picture.

Some of the most basic yet important things to look for in a stock are:

  • 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 don't mean anything if a company can't turn them into profits. Strong margins ensure a company is able to turn revenue into profit.
  • Balance sheet. Debt-laden companies have banks and bondholders competing with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Companies need to be able to turn their resources into profitable business opportunities. Return on equity helps measure how well a company is finding those opportunities.
  • Valuation. You can't afford to pay too much for even the best companies. Earnings multiples are simple, but using normalized figures gives you a sense of how valuation fits into a longer-term context.
  • Dividends. Investors are demanding tangible proof of profits, and there's nothing more tangible than getting a check every three months. 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 Taseko.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-Year Annual Revenue Growth > 15%

30.7%

pass

 

1-Year Revenue Growth > 12%

41.7%

pass

Margins

Gross Margin > 35%

36.9%

pass

 

Net Margin > 15%

51.5%

pass

Balance Sheet

Debt to Equity < 50%

3.7%

pass

 

Current Ratio > 1.3

4.45

pass

Opportunities

Return on Equity > 15%

34.9%

pass

Valuation

Normalized P/E < 20

8.54 

pass

Dividends

Current Yield > 2%

0%

fail

 

5-Year Dividend Growth > 10%

0%

fail

       
 

Total Score

 

8 out of 10

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.

A score of 8 is extremely good, even if it falls short of perfect. Like many metals-related stocks, Taseko is still in a strong growth phase, with its promising Prosperity mine in western Canada getting closer to approval. Between that and its already-producing flagship Gibraltar copper mine, Taseko needs every penny it can get to reinvest into its own business. And despite concerns that increasing supplies will hurt prices for both Taseko and Teck Resources (NYSE: TCK  ) , Taseko has the advantage of having a chunk of its production hedged in 2010.

Dividend investors shouldn't expect payouts anytime soon, which is the stock's only black marks. But most investors in mining stocks are quite comfortable with that. Even though copper competitors Southern Copper (NYSE: SCCO  ) and Freeport-McMoRan Copper & Gold (NYSE: FCX  ) both pay modest dividends, Taseko's much smaller size gives it a whole lot more upside potential.

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.

The Motley Fool is recommending 50 stocks in 50 days for its new "11 O'Clock Stock" series. For more information, click here. Then come back to Fool.com every single weekday at 11 a.m. ET for a brand-new pick!

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (17)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 25, 2010, at 1:28 PM, drillerjim101 wrote:

    The Federal Reserve is hell bent on devaluing the dollar by printing money to prop up our flagging economy. Commodities will continue to benefit as our dollars become less valuable. A low cost well managed company like TGB will stand to benefit.

  • Report this Comment On September 27, 2010, at 2:44 PM, Br0oklyn wrote:

    TGB Is a Go.

  • Report this Comment On October 01, 2010, at 2:05 PM, mustang28027 wrote:

    Pure speculative play... could be subject to an aqusition... If you have the money, go for it!

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