Is Boston Scientific 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 Boston Scientific (NYSE: BSX  ) 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 Boston Scientific.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 4.4% fail
  1-Year Revenue Growth > 12% (2.8%) fail
Margins Gross Margin > 35% 64.7% pass
  Net Margin > 15% (30.2%) fail
Balance Sheet Debt to Equity < 50% 54.7% fail
  Current Ratio > 1.3 1.20 fail
Opportunities Return on Equity > 15% (19.5%) fail
Valuation Normalized P/E < 20 25.73 fail
Dividends Current Yield > 2% 0.0% fail
  5-Year Dividend Growth > 10% 0.0% fail
       
  Total Score   1 out of 10

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

Scoring just a single point, Boston Scientific could hardly get further from perfect. The medical device maker has been trying to turn around for years, but so far, it simply hasn't made much progress.

Part of the problem is the extremely competitive nature of the business lines that Boston Scientific has focused on. With its heart defibrillators, the company has to compete with Medtronic (NYSE: MDT  ) and St. Jude Medical (NYSE: STJ  ) , both of which are highly profitable, enjoying stronger growth and better returns on equity. And with its stent business, Medtronic and Abbott Labs (NYSE: ABT  ) have developed drug-eluting stents of their own, cutting into Boston Scientific's once-dominant position in the industry.

Moreover, the company has faced some other setbacks. Some criticize its 2006 takeover of Guidant, for which it paid premium prices in a bidding war with Johnson & Johnson (NYSE: JNJ  ) . More recently, it had to recall its heart defibrillators for a couple of weeks earlier this year.

On the whole, Boston Scientific has a lot of work left to do to turn the corner. Until it does, many of its competitors look a lot more like perfect stocks than Boston Scientific does.

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.

Click here to add Boston Scientific 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 diagonal call position on Johnson & Johnson, which is a Motley Fool Income Investor recommendation. The Fool owns shares of Abbott Laboratories, Johnson & Johnson, and Medtronic. 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 (1) | Recommend This Article (3)

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 December 13, 2010, at 4:38 PM, kpscott wrote:

    While it's nice to know that BSX doesn't meet these criteria, this would be a far more useful article if it described what stocks DO meet these criteria.

Add your comment.

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: 1398203, ~/Articles/ArticleHandler.aspx, 10/2/2014 5:13:25 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...


Advertisement