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 Goldcorp
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 different 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 Goldcorp.
|
Factor |
What We Want to See |
Actual |
Pass or Fail? |
|---|---|---|---|
| Growth | 5-Year Annual Revenue Growth > 15% | 32.3% | Pass |
| 1-Year Revenue Growth > 12% | 52.6% | Pass | |
| Margins | Gross Margin > 35% | 61.8% | Pass |
| Net Margin > 15% | 46.0% | Pass | |
| Balance Sheet | Debt to Equity < 50% | 46.0% | Pass |
| Current Ratio > 1.3 | 2.34 | Pass | |
| Opportunities | Return on Equity > 15% | 10.1% | Fail |
| Valuation | Normalized P/E < 20 | 50.14 | Fail |
| Dividends | Current Yield > 2% | 0.9% | Fail |
| 5-Year Dividend Growth > 10% | 2.8% | Fail | |
| Total Score | 6 out of 10 |
Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.
With a score of 6, Goldcorp looks pretty shiny. The company has bucked the downward trend for miners recently and appears poised to take advantage of high gold prices as long as they last.
Unless you've been hiding under a rock, you probably know about gold's explosive run to record highs above $1,500. During the 10-year bull market in gold, Goldcorp has combined a knack for smart acquisitions with strong organic growth in pursuit of big production growth.
With gold hitting new highs, many gold miners haven't followed suit. Newmont Mining
The obvious question for Goldcorp is what happens next to gold bullion prices. With a huge debate between bulls who see potential for massive future gains and bears looking for a continued collapse, the only thing that's certain is that Goldcorp will do its best to reach perfection in whatever price environment it has to deal with.
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.
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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.
