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
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
But being top dog in this industry means constantly being under threat. Although State Street
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.
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