Has Boeing Become 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 Boeing (NYSE: BA  ) 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 Boeing.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-Year Annual Revenue Growth > 15%

3.2%

Fail

 

1-Year Revenue Growth > 12%

(0.7%)

Fail

Margins

Gross Margin > 35%

19.3%

Fail

 

Net Margin > 15%

5.4%

Fail

Balance Sheet

Debt to Equity < 50%

241%

Fail

 

Current Ratio > 1.3

1.19

Fail

Opportunities

Return on Equity > 15%

88.4%

Pass

Valuation

Normalized P/E < 20

16.96

Pass

Dividends

Current Yield > 2%

2.6%

Pass

 

5-Year Dividend Growth > 10%

7.9%

Fail

       
 

Total Score

 

3 out of 10

Source: S&P Capital IQ. Total score = number of passes.

When we looked at Boeing last year, it had an identical score of 3. Earnings have bounced back, bringing the stock's P/E ratio down, but a flat dividend since early 2009 has slowed long-term dividend growth.

Boeing still faces many of the same challenges it did last year. On the commercial airline front, the company has benefited from big plane orders from AMR (NYSE: AMR  ) and Delta Air Lines (NYSE: DAL  ) , but with AMR rumored to be considering restructuring and other airlines ailing from high fuel costs, the entire industry is in flux. And although Boeing has finally rolled out its 787 Dreamliner with its first delivery, the model won't be profitable for years.

Meanwhile, federal budget cuts will hurt the defense side of the business. Although several competitors -- including Northrop Grumman (NYSE: NOC  ) , Lockheed Martin (NYSE: LMT  ) , and General Dynamics (NYSE: GD  ) -- found themselves on the Senate Appropriations Committee "hit list" of proposed cuts, the committee recommended eliminating funding entirely for Boeing's A-10 anti-tank fighter.

With a heavy burden of debt and tough economic conditions, Boeing isn't likely to move up toward perfection very soon. What the company needs most now is some clarity on both the commercial and military segments of its business. Only then will it be clear whether Boeing can eventually become 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 Boeing 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. The Motley Fool owns shares of Northrop Grumman, General Dynamics, and Lockheed Martin. 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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