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 Taseko Mines (AMEX: TGB ) 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 Taseko Mines.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||8.8%||Fail|
|1-Year Revenue Growth > 12%||11.2%||Fail|
|Margins||Gross Margin > 35%||51.1%||Pass|
|Net Margin > 15%||11.9%||Fail|
|Balance Sheet||Debt to Equity < 50%||46.8%||Pass|
|Current Ratio > 1.3||7.01||Pass|
|Opportunities||Return on Equity > 15%||6.6%||Fail|
|Valuation||Normalized P/E < 20||17.33||Pass|
|Dividends||Current Yield > 2%||0%||Fail|
|5-Year Dividend Growth > 10%||0%||Fail|
|Total Score||4 out of 10|
Source: Capital IQ, a division of Standard & Poor's. NM = not meaningful; Taseko Mines started paying a dividend in March 2011. Total score = number of passes.
When we looked at Taseko Mines last September, it had a score of eight, so the company has seen a dramatic drop in its score since late 2010. Taseko's growth has slowed dramatically, and net margins and returns on equity have also fallen sharply.
Late last year, Taseko got some bad news: Canada's Environment Minister announced a negative permitting decision for the company's Prosperity copper and gold mine. But in January, the company discovered potentially lucrative niobium deposits at one of its properties, giving it a chance to compete against IAMGOLD (NYSE: IAG ) as one of only a handful of suppliers of the metal worldwide.
Even if Prosperity remains shuttered, Taseko's Gibraltar mine has shown promising results, and the miner plans to expand its operations there. Those factors combined with the niobium discovery make Taseko compare favorably against fellow copper producers Freeport-McMoRan Copper & Gold (NYSE: FCX ) and Southern Copper (NYSE: SCCO ) . In addition, Taseko's substantial molybdenum production puts it in competition with Thompson Creek Metals (NYSE: TC ) .
Of course, recent tremors in the global economy have put a wrench in the future plans of miners across the industry, including Taseko. For the company to recover its lost ground, it will have to hope for renewed strength in commodities markets as well as better internal performance. Without those things, Taseko may never fulfill its potential to become a perfect stock.
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."