Is Oshkosh 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 whether Oshkosh (NYSE: OSK  ) 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 Oshkosh.

Factor What We Want to See Actual Pass or Fail?
Growth 5-Year Annual Revenue Growth > 15% 17.7% Pass
  1-Year Revenue Growth > 12% (17.8%) Fail
Margins Gross Margin > 35% 16.4% Fail
  Net Margin > 15% 4.7% Fail
Balance Sheet Debt to Equity < 50% 68.5% Fail
  Current Ratio > 1.3 1.46 Pass
Opportunities Return on Equity > 15% 25.2% Pass
Valuation Normalized P/E < 20 4.58 Pass
Dividends Current Yield > 2% 0.0% Fail
  5-Year Dividend Growth > 10% 0.0% Fail
  Total Score   4 out of 10

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

With just four points, Oshkosh doesn't put up much of a fight. The defense contractor is suffering along with its entire industry in an environment of huge uncertainty.

Defense stocks across the board have taken damage from incessant budget wrangling on Capitol Hill. Yet some, including Fool analyst Andrew Tonner, think the declines have been overdone. Many contractors, including Lockheed Martin (NYSE: LMT  ) and Boeing (NYSE: BA  ) , have actually seen order backlogs rise over the past year.

Still, Oshkosh deserves some of the hit that its stock has taken, because it created the root of its problems long before funding tightened up. Two years ago, right after it beat out Force Protection (Nasdaq: FRPT  ) and Navistar (NYSE: NAV  ) on a contract to provide off-road armored vehicles to the Pentagon, Oshkosh announced that it had also won the right to build the Army's Family of Medium Tactical Vehicles. Yet, as it's turned out, the company underbid on the FMTV project, and cost overruns are threatening to turn the project into a money-loser. That's put Oshkosh's overall profits under pressure.

To reverse its decline, Oshkosh needs to understand that even in a tough competitive environment, it doesn't pay to do whatever it takes to win business. Its shares are a huge bargain, but it'll still likely be a while before Oshkosh can turn things around and look more like a 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 Oshkosh 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. The Motley Fool owns shares of Lockheed Martin and Oshkosh. 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 (0) | Recommend This Article (0)

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1537624, ~/Articles/ArticleHandler.aspx, 10/21/2016 9:48:25 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,057.92 -104.43 -0.57%
S&P 500 2,131.78 -9.56 -0.45%
NASD 5,232.59 -9.25 -0.18%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 9:32 AM
OSK $52.31 Down -0.58 -1.10%
Oshkosh Corporatio… CAPS Rating: ***
BA $134.94 Down -0.90 -0.66%
Boeing CAPS Rating: ****
FRPT.DL $0.00 Down +0.00 +0.00%
Force Protection CAPS Rating: ***
LMT $230.61 Down -1.22 -0.53%
Lockheed Martin CAPS Rating: ****
NAV $22.59 Down -0.41 -1.78%
Navistar Internati… CAPS Rating: **