Has Boise 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 Boise (NYSE: BZ  ) 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 Boise.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 5.7%* Fail
  1-Year Revenue Growth > 12% 14.4% Pass
Margins Gross Margin > 35% 21.3% Fail
  Net Margin > 15% 3.1% Fail
Balance Sheet Debt to Equity < 50% 103.5% Fail
  Current Ratio > 1.3 2.05 Pass
Opportunities Return on Equity > 15% 10.8% Fail
Valuation Normalized P/E < 20 9.37 Pass
Dividends Current Yield > 2% 6.8%** Pass
  5-Year Dividend Growth > 10% NM NM
       
  Total Score   4 out of 9

Source: S&P Capital IQ. NM = not meaningful; Boise paid its first special dividend in 2010. Total score = number of passes. *Annualized revenue growth since Dec. 2008. **Based on special dividend of $0.48 earlier in 2012.

Since we looked at Boise last year, the company has risen by a point. Faster revenue growth is responsible for the gain, even though the stock is down slightly over the past year.

Boise makes packaging material and other paper products. After nearly going under during the financial crisis four years ago, the company has made an almost complete recovery.

Yet Boise remains quite small compared to its competitors. With International Paper (NYSE: IP  ) having completed its acquisition of Temple-Inland, it now dwarfs Boise's operation. Even Domtar (NYSE: UFS  ) has triple the profits and more than double the revenue that Boise has.

Boise is trying to grow, though. Acquisitions of Tharco and Hexacomb should give Boise a bigger presence in the packaging industry, answering Rock-Tenn's (NYSE: RKT  ) buyout of packaging company Smurfit-Stone last year. During the first quarter of 2012, Boise managed to push sales higher by 13% while boosting its net income 14%. With competitor Packaging Corp. of America (NYSE: PKG  ) having posted favorable results for its second quarter, Boise may be poised for more success when it reports next week.

For Boise to keep improving, revenue growth will be the first main challenge. Once that's out of the way, working on bringing margins up and debt down will be the next step. With a healthy dividend, though, many investors may find Boise to be an interesting proposition, even if it doesn't come without some substantial risk.

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.

Boise isn't perfect, but we've got some other ideas for you to take a look at. Let me invite you to learn about three smart long-term stock plays in the Fool's latest special report. It's yours for the taking and is absolutely free, but don't miss out -- click here and read it today.

Click here to add Boise 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. The Motley Fool owns shares of Rock-Tenn. 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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