Has Coeur d'Alene Mines 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 Coeur d'Alene Mines (NYSE: CDE  ) 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 Coeur d'Alene Mines.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 35.8% Pass
  1-Year Revenue Growth > 12% 63.7% Pass
Margins Gross Margin > 35% 57.4% Pass
  Net Margin > 15% 8.3% Fail
Balance Sheet Debt to Equity < 50% 6.8% Pass
  Current Ratio > 1.3 1.77 Pass
Opportunities Return on Equity > 15% 4.0% Fail
Valuation Normalized P/E < 20 12.19 Pass
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
       
  Total Score   6 out of 10

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

Since we looked at Coeur d'Alene Mines last year, the company has picked up a point. Returning to profitability was the key component of the miner's success in the past year, but the stock's recent plunge raises concerns about whether the big bull market in precious metals may be coming to an end.

Coeur d'Alene primarily mines silver, with a world-class deposit of silver and gold in its Palmarejo mine in Mexico. The area has so much promise that Paramount Gold & Silver (AMEX: PZG  ) bought up land neighboring the Palmarejo mine. Meanwhile, with Coeur d'Alene having topped the 20 million ounce mark in production, the company now rivals Pan American Silver (Nasdaq: PAAS  ) with its recent growth.

Most recently, Coeur d'Alene reported strong earnings for its first quarter, with an 11% rise in adjusted profits. Yet one area where Coeur d'Alene is falling behind is in its lack of dividend. By contrast, rival Hecla Mining (NYSE: HL  ) started paying a dividend tied to average silver prices. Still, with Coeur d'Alene having just gotten out of the red, a conservative approach toward dividends makes a degree of sense.

The recent drop in silver prices has raised concerns throughout the industry, with Coeur d'Alene far from the only mining stock to suffer a huge drop in value. Nevertheless, until precious metals prices stabilize, investors may well remain reluctant to buy shares of Coeur d'Alene.

For Coeur d'Alene to keep improving, it needs to keep boosting its profit margins and look to minimize costs. In the long run, when it makes sense to pay a dividend, Coeur d'Alene could well find itself a lot closer to perfection in the years ahead.

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.

If you like precious metals, we've got a gold stock you really should look at more closely. Read The Motley Fool's latest special report on gold to discover the tiny gold stock digging up massive profits. It's free but only available for a limited time.

Click here to add Coeur d'Alene Mines to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Pan American Silver. 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 (1)

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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 May 29, 2012, at 11:22 AM, EllenBrandtPhD wrote:

    Looking backwards in CDE - even one quarter - is simply not the thing to do right now.

    Palmarejo - its truly world-class Mexican megamine - did not really start going strong until a very few quarters ago.

    And its important Kensington mine in Alaska has been off-line for expansion the past two quarters, denting both prduction and earnings.

    It just started up again, and CDE should improve beautifully the second half of this year.

    Note that CDE is PM sector hero Eric Sprott's top pick among the larger PM index components.

    Also note that with a very low float right now, CDE is an attractive takeout target for any number of large companies, including Fresnillo, Frisco, or Freeport.

  • Report this Comment On June 17, 2012, at 9:31 AM, skypilot2005 wrote:
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