Has DuPont 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 DuPont (NYSE: DD  ) 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 DuPont.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-Year Annual Revenue Growth > 15%

6.0%

Fail

1-Year Revenue Growth > 12%

20.2%

Pass

Margins

Gross Margin > 35%

28.7%

Fail

Net Margin > 15%

9.3%

Fail

Balance Sheet

Debt to Equity < 50%

128.9%

Fail

Current Ratio > 1.3

1.65

Pass

Opportunities

Return on Equity > 15%

32.4%

Pass

Valuation

Normalized P/E < 20

16.40

Pass

Dividends

Current Yield > 2%

3.5%

Pass

5-Year Dividend Growth > 10%

2.1%

Fail

Total Score

5 out of 10

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

The score of five points is the same as it was when we looked at DuPont last year. Revenue growth has continued to accelerate, though, and the chemical maker still pays a healthy dividend.

Times have been good for the chemical industry lately. Olin (NYSE: OLN  ) , Celanese (NYSE: CE  ) , and Dow Chemical (NYSE: DOW  ) have all reported good quarterly results over the past couple of weeks. Despite concerns about the health of the global economy, it's clear that demand for chemicals remains unchecked. Even Eastman Chemical (NYSE: EMN  ) , whose earnings fell in the most recent quarter, had revenue up 20% from the year-ago period.

Recent results show the strength that DuPont in particular has seen. In its most recent quarterly report, the company announced that all of its segments had seen healthy sales gains, with growth across the globe in all five of its geographical regions. The company even guided toward the upper end of its prior range for full-year earnings.

With more than 200 years of success behind it, DuPont has shown that it can survive tough times and thrive during good times. With its generous dividend yield, shareholders can afford to wait as the chemical company makes slow but steady strides toward getting closer to perfection.

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 DuPont 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. 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 (3) | Recommend This Article (4)

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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 November 02, 2011, at 11:19 AM, funfundvierzig wrote:

    This stock, DD, has hardly been a "perfect stock" for the past 13 years. In May of 1998, DD was trading for 84 and change, its all-time peak. DD for most of this year, 2011, has been trading in the forties. Since 1998 there have only been two small dividend hikes, 2 cents from 35 to 37 cents quarterly, and four years ago in Q4 2007, 4 cents, to the current 41 cents quarterly.

    The shares of many of DuPont's superior-managed and performing competitors, such as Monsanto, BASF, and Syngenta, have been far more rewarding to long term investors.

    Merely the perspective of one individual retail investor with long positions in MON, SYT, and DD...funfun..

  • Report this Comment On November 03, 2011, at 5:05 PM, Incomediv wrote:

    This company's failure to share profits with the shareholders through dividend increases will keep the stock stalled out.

  • Report this Comment On November 03, 2011, at 8:21 PM, funfundvierzig wrote:

    Very good point, incomediv,

    In the past quarter, Q3 2011, DuPont Management shelled out a whopping $400 million to buy back 8.8 million DD shares for their own compensation!

    For years, it seems this old-line chemical conglomerate has been run foremost for the benefit of its entrenched senior executives.

    ...funfun..

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