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 Hecla Mining (NYSE: HL ) 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 Hecla Mining.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||13.8%||Fail|
|1-Year Revenue Growth > 12%||(24.4%)||Fail|
|Margins||Gross Margin > 35%||61.0%||Pass|
|Net Margin > 15%||23.5%||Pass|
|Balance Sheet||Debt to Equity < 50%||1.2%||Pass|
|Current Ratio > 1.3||3.70||Pass|
|Opportunities||Return on Equity > 15%||8.2%||Fail|
|Valuation||Normalized P/E < 20||15.85||Pass|
|Dividends||Current Yield > 2%||1.0%||Fail|
|5-Year Dividend Growth > 10%||NM||NM|
|Total Score||5 out of 9|
Source: S&P Capital IQ. NM = not meaningful; Hecla started paying a dividend in Nov. 2011. Total score = number of passes.
Since we looked at Hecla Mining last year, the company's score has dropped by two points. A big plunge in revenue is responsible for the hit, and the shares have also performed pretty badly, with the stock down about 30% over the past year.
It's been a tough year for mining stocks. Even as gold and silver have come off the highs they set last year, players around the industry have had to deal with the double-hit of falling sales and higher production costs. But in the past month, silver-related companies have rebounded sharply, with Silver Wheaton (NYSE: SLW ) up almost 25% and First Majestic Silver (NYSE: AG ) rising 30%. As fundamental demand for silver reasserts itself, miners could continue to recover.
Still, Hecla has had to deal with its own unique challenges. The company had to close its Lucky Friday mine temporarily after the Mine Safety and Health Administration ordered Hecla to make repairs to the mine's main shaft. Yet it appears that Hecla may be able to return to full staffing at the mine by the end of the year, which would help get the company's production moving in the right direction again. Although it remains behind Pan American Silver (Nasdaq: PAAS ) and Coeur d'Alene Mines (NYSE: CDE ) , those producers have had trouble boosting their production too, giving Hecla the chance to catch up.
Moreover, Hecla is rewarding its shareholders with dividend payouts linked to the price of silver. That gives investors direct exposure to rises and falls in silver prices, which makes sense given their obvious importance to Hecla's profits.
For Hecla to improve, it needs to get its mines on line and producing as soon as possible. Once that happens, though, investors could start gravitating back to Hecla as it starts marching toward perfection.
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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