Is Titanium Metals 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 Titanium Metals (NYSE: TIE  ) 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 Titanium Metals.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-Year Annual Revenue Growth > 15%

(1%)

Fail

 

1-Year Revenue Growth > 12%

19.8%

Pass

Margins

Gross Margin > 35%

22.2%

Fail

 

Net Margin > 15%

11.1%

Fail

Balance Sheet

Debt to Equity < 50%

0%

Pass

 

Current Ratio > 1.3

6.38

Pass

Opportunities

Return on Equity > 15%

8.9%

Fail

Valuation

Normalized P/E < 20

28.97

Fail

Dividends

Current Yield > 2%

2%

Pass

 

5-Year Dividend Growth > 10%

0%

Fail

 

 

 

 

 

Total Score

 

4 out of 10

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

With a score of only 4, Titanium Metals hasn't dug up a perfect showing. The company is locked into a cyclical business that has gone through a down cycle in recent years, but signs suggest it may soon fly higher.

Along with competitors RTI International (NYSE: RTI  ) and Allegheny Technologies (NYSE: ATI  ) , Titanium Metals produces the light metal titanium. With the aerospace industry making up a huge part of Titanium Metals' business -- commercial aircraft maker Boeing (NYSE: BA  ) and defense conglomerate United Technologies (NYSE: UTX  ) are just two of its customers -- the company rises and falls with the industry's cycles.

That exposure hurt the company during the recession. Production delays have plagued Boeing's 787 Dreamliner, and overall demand fell. But more recently, the company has started to see some more growth in orders for future delivery, with use in infrastructure and chemical production starting to climb.

In particular, big demand with new airplane orders could be the catalyst that investors have waited for. With AMR (NYSE: AMR  ) and Delta (NYSE: DAL  ) planning to add hundreds of planes to their fleets, plane makers will need titanium -- and Titanium Metals should be in a position to deliver.

Shareholders in Titanium Metals have suffered through big ups and downs over the years. But right now, it looks like the sky's the limit for the stock -- and Titanium Metals could look a lot more like a perfect stock in the near future.

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 the best investments from the rest.

Click here to add Titanium Metals 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 Titanium Metals. 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 (2) | Recommend This Article (3)

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.

  • Report this Comment On September 09, 2011, at 2:21 PM, busterbuddy wrote:

    Boeing probably has already locked in a part price so the profits are locked for 787 parts.

  • Report this Comment On September 11, 2011, at 1:35 PM, rmiers wrote:

    we have a good CEO, a great product, EU exposure and a future full of war and turbulence

    An American company too

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