Is BlackRock the Perfect Stock?

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 BlackRock (NYSE: BLK  ) 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 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 BlackRock.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 46.1% Pass
  1-Year Revenue Growth > 12% 55.9% Pass
Margins Gross Margin > 35% 58.8% Pass
  Net Margin > 15% 24.8% Pass
Balance Sheet Debt to Equity < 50% 12.0%* Pass
  Current Ratio > 1.3 9.87 Pass
Opportunities Return on Equity > 15% 8.5% Fail
Valuation Normalized P/E < 20 19.37 Pass
Dividends Current Yield > 2% 2.9% Pass
  5-Year Dividend Growth > 10% 27.1% Pass
       
  Total Score   9 out of 10

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes. *Debt to equity includes short-term and long-term debt and excludes collateral liabilities under securities lending agreements.

With nine points, BlackRock comes pretty close to perfection. The asset manager made a game-changing acquisition recently, and it is now poised over one of the most exciting opportunities in the financial world.

BlackRock has had a substantial asset management business for a long time. But in 2009, the company won a bidding war for the iShares ETF business of Barclays (NYSE: BCS  ) , giving BlackRock the premier name in the $1 trillion ETF market. Now, BlackRock has $3.65 trillion under management across a variety of stock, bond, and other investments.

But being top dog in this industry means constantly being under threat. Although State Street (NYSE: STT  ) , which manages the SPDR franchise of ETFs, has largely remained stagnant, other players like Vanguard and PowerShares have taken aggressive strides forward. Schwab (NYSE: SCHW  ) has come up with its own proprietary ETFs and made the innovative decision to offer them commission-free to clients, starting a price war in the brokerage industry that has lasted a year and a half.

Investors are jumping hand over fist into ETFs. But BlackRock's healthy dividend yield, strong growth, and fairly reasonable valuation suggest that it may be more lucrative to invest in the fund manager instead of its funds. Given some time, BlackRock may soon become the perfect stock.

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 BlackRock to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

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.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of BlackRock and Charles Schwab. 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.


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