Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is DuPont the Perfect Stock?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

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 DuPont (NYSE: DD  ) 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, however, 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 DuPont.

Factor What We Want to See Actual Pass or Fail?
Growth 5-Year Annual Revenue Growth > 15% 2.4% fail
  1-Year Revenue Growth > 12% 17.8% pass
Margins Gross Margin > 35% 29.1% fail
  Net Margin > 15% 9.9% fail
Balance Sheet Debt to Equity < 50% 134.7% fail
  Current Ratio > 1.3 2.10 pass
Opportunities Return on Equity > 15% 36.8% pass
Valuation Normalized P/E < 20 17.66 pass
Dividends Current Yield > 2% 3.5% pass
  5-Year Dividend Growth > 10% 2.6% fail
  Total Score   5 out of 10

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

DuPont clocks in with an average score of 5. Although the company pays a nice dividend, it has struggled to get through the recession.

DuPont is known as a chemical manufacturer, focusing primarily on agricultural and nutritional products. That puts the company up against not just fellow diversified chemical competitor Dow Chemical (NYSE: DOW  ) but also more specialized ag company Monsanto (NYSE: MON  ) . Times have been good for the industry lately, as Dow has seen many of its business segments post double-digit sales gains lately.

But where DuPont's business has struggled lately is in its pharmaceutical segment, which contributed nearly a third of its pre-tax operating profit in 2009. With two of its drugs coming off patent, DuPont saw year-over-year earnings fall 11% in its most recent quarter. Still, the company predicted higher-than-expected profits for the full year.

For investors seeking income, DuPont's dividend both is significant and looks safe, although the company hasn't grown its payout very quickly. If DuPont can cut its debt and keep looking for ways to cut costs and improve margins, then it could rise out of the middle of the pack.

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 the best investments from the rest.

Click here to add DuPont 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 in this article. Motley Fool Options has recommended a synthetic long position on Monsanto. Try any of our Foolish newsletters today, free for 30 days. 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.

Read/Post Comments (2) | Recommend This Article (4)

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 November 01, 2010, at 8:59 PM, funfundvierzig wrote:

    Double D has been the imperfect stock for well over a decade. DD hit its peak in May of 1998 @ 84 and change on a much greater number of shares outstanding.

    The stock has reflected the mediocrity of DuPont's Management and the sickness of their marginal performance. DuPont's once fabled R & D hasn't produced a major new high-profit blockbuster product or breakthrough technology for years.

    The current quarter, Q4 2010, is expected by analysts to show a drop in per share earnings over the very weak year 2009.


  • Report this Comment On November 02, 2010, at 11:34 PM, Funfunchaser wrote:

    The crickets thank you for your input.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1352742, ~/Articles/ArticleHandler.aspx, 10/26/2016 11:59:41 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,212.31 43.04 0.24%
S&P 500 2,143.36 0.20 0.01%
NASD 5,270.23 -13.17 -0.25%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 11:43 AM
DD $68.87 Down -0.75 -1.08%
DuPont CAPS Rating: ****
DOW $53.74 Down -0.37 -0.68%
The Dow Chemical C… CAPS Rating: ****
MON $101.45 Up +0.05 +0.05%
Monsanto CAPS Rating: ***