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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 Navios Maritime Holdings (NYSE: NM ) 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 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 Navios Maritime Holdings.
|Factor||What We Want to See||Actual||Pass or Fail?|
|Growth||5-Year Annual Revenue Growth > 15%||23.7%||Pass|
|1-Year Revenue Growth > 12%||13.6%||Pass|
|Margins||Gross Margin > 35%||43.6%||Pass|
|Net Margin > 15%||21.4%||Pass|
|Balance Sheet||Debt to Equity < 50%||160%||Fail|
|Current Ratio > 1.3||1.74||Pass|
|Opportunities||Return on Equity > 15%||12.2%||Fail|
|Valuation||Normalized P/E < 20||13.77||Pass|
|Dividends||Current Yield > 2%||4.3%||Pass|
|5-Year Dividend Growth > 10%||29.2%||Pass|
|Total Score||8 out of 10|
Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.
With eight points, Navios Maritime Holdings comes pretty close to perfection. The company has done a good job of navigating through the stormy seas of shipping stocks recently.
The shipping industry has had to deal with a tough environment lately. Shippers like Diana Shipping (NYSE: DSX ) and Genco Shipping (NYSE: GNK ) have seen charter rates drop in recent quarters. Navios hasn't been immune from the pain, struggling with lower earnings. Others have moved dramatically toward other niches, like DryShips (Nasdaq: DRYS ) and its foray into ultra-deepwater drill ships.
But Navios has charted a course through the tough times. Along with related entities Navios Maritime Partners (NYSE: NMM ) and Navios Maritime Acquisition (NYSE: NNA ) , it has aggressively ordered new ships in the hopes that global shipping demand will catch up to the supply of vessels throughout the industry. At the same time, it has locked in very long-term charter rates to newly acquired vessels, hedging against future fluctuations in rates.
Navios' acquisitions have boosted the company's debt levels above where investors are usually comfortable. But given the challenges of the shipping environment right now, it's remarkable to see Navios having done as well as it has. If its long-term strategy proves successful, Navios could easily become a perfect stock.
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.
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Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our 13 Steps to Investing Foolishly.