Is Statoil 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 Statoil (NYSE: STO  ) 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 Statoil.

Factor What We Want to See Actual Pass or Fail?
Growth 5-Year Annual Revenue Growth > 15% 6.8% fail
  1-Year Revenue Growth > 12% 3.4% fail
Margins Gross Margin > 35% 39.8% pass
  Net Margin > 15% 7.1% fail
Balance Sheet Debt to Equity < 50% 55.4% fail
  Current Ratio > 1.3 1.01 fail
Opportunities Return on Equity > 15% 17.9% pass
Valuation Normalized P/E < 20 5.30 pass
Dividends Current Yield > 2% 4.3% pass
  5-Year Dividend Growth > 10% 13.4% pass
  Total Score   5 out of 10

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

Statoil comes in with a score of 5. Although the Norwegian energy producer isn't a household name for U.S. investors, it's been making its share of waves throughout the world energy markets.

Statoil is northern Europe's equivalent of the names you see when you fill up here at home. The company operates thousands of gas stations and truck stops across the region, as well as refining oil and exploring for energy.

But lately, Statoil has been making some big strategic moves. In late 2008, the company paired up with Chesapeake Energy (NYSE: CHK  ) to buy into the promising Marcellus shale play. That joint venture has also gone beyond U.S. shores to stake claims in other shale areas, including South Africa's Karoo Basin in conjunction with Sasol (NYSE: SSL  ) .

Moreover, the company isn't just sticking with Chesapeake. In November, Statoil announced a joint venture with Talisman Energy (NYSE: TLM  ) in the Eagle Ford shale area. And if hopes for European shale gas in countries like Poland pan out, Statoil would be well-placed to take advantage of resources in its own backyard.

Like many energy giants, Statoil has a promising dividend that has grown over time. Although Statoil's growth has been lackluster, continued enthusiasm in energy could turn that around in a hurry. So even if it's not the perfect stock right now, Statoil has no shortage of potential for the future.

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.

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 in this article. Statoil and Sasol are Motley Fool Income Investor recommendations. Chesapeake Energy is a Motley Fool Inside Value pick. 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 (4) | 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 January 07, 2011, at 11:38 AM, TripleWhiskey wrote:

    I think they might be buying what CHK will be selling.. Seems to me if they do that then they will just replace CHK's as a big spender... I like the Idea,but funds don't like debt..

  • Report this Comment On January 10, 2011, at 4:57 PM, investor131 wrote:

    If STO oil is not the stock to invest in and the score

    is 5 of 10 why didn't pick pick a stock

    with a higher score and recommend it for buy I'm a FOOL member and would like to spend time reading about a stock to buy since I trust your openin and beleiveve in your knowledge

  • Report this Comment On January 10, 2011, at 5:04 PM, investor131 wrote:

    How about TLM , VLO or HES are they a buy?

  • Report this Comment On January 10, 2011, at 8:27 PM, investor131 wrote:

    Mr Caplinger do you have acomment please

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