Has Noble Energy 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 Noble Energy (NYSE: NBL  ) 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 Noble Energy.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 7.2% Fail
  1-Year Revenue Growth > 12% 33.4% Pass
Margins Gross Margin > 35% 82.8% Pass
  Net Margin > 15% 17.5% Pass
Balance Sheet Debt to Equity < 50% 57.1% Fail
  Current Ratio > 1.3 0.95 Fail
Opportunities Return on Equity > 15% 9.9% Fail
Valuation Normalized P/E < 20 22.37 Fail
Dividends Current Yield > 2% 1% Fail
  5-Year Dividend Growth > 10% 20.6% Pass
       
  Total Score   4 out of 10

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

Since we looked at Noble Energy last year, the company has dropped two points. The score drop is due to a weaker balance sheet, but the stock has still managed to break even over the past year.

As an offshore driller operating in the Gulf of Mexico, Noble Energy struggled after the Gulf oil spill. But as its revenue figures show, the company has bounced back strongly as things get back to normal in the Gulf. Fellow deepwater operator Seadrill (NYSE: SDRL  ) has seen renewed enthusiasm about prospects worldwide, and Noble Energy is enjoying the benefits of that trend as well.

Noble Energy is also refocusing on its top growth prospects. Earlier this week, it sold off some of its Permian Basin properties, generating cash to focus on its holdings in the Marcellus shale area.

One big area for potential growth is Israel, where Noble Energy is trying to create a liquefied natural gas hub. While Cheniere Energy (NYSE: LNG  ) is expanding its Sabine Pass terminal for LNG export and Chevron (NYSE: CVX  ) and ConocoPhillips (NYSE: COP  ) are looking to export LNG from Australia, Noble Energy's project could have a huge competitive advantage because it's so much closer to hungry markets in Europe. Now that ATP Oil & Gas has declared bankruptcy, Noble Energy has the inside track in Israel.

For Noble Energy to improve, it needs its international projects in Israel, the Falkland Islands, and off the shore of West Africa to bear fruit. If the energy market cooperates, then Noble Energy could gain a lot of ground in the years to come.

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.

Noble Energy has plenty of potential, but Seadrill has been plowing the deep waters successfully for quite a while. Get the latest from the Fool's new premium report on Seadrill, which gives you all the pros and cons of investing in the company. Accept this invitation and get your copy today.

Click here to add Noble Energy 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. The Motley Fool owns shares of Seadrill. Motley Fool newsletter services have recommended buying shares of Seadrill and Chevron. 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 (1)

Comments from our Foolish Readers

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 September 06, 2012, at 5:30 PM, Al824 wrote:

    Noble Energy is an operator not a drilling company. There is another company called Noble Drilling which would be more comparable to Seadrill. I think you got Noble Energy and Noble Drilling mixed up.

  • Report this Comment On September 09, 2012, at 2:20 PM, Hohum777 wrote:

    Actually, the offshore driller is called Noble Corp (NYSE: NE). But yes, a very sloppy blunder

  • Report this Comment On September 14, 2012, at 3:54 PM, caztx wrote:

    It is incorrect to say that Europe is hungry for LNG and poses a competitive advantage. Asia is hungry for LNG and willing to pay a premium to get it - cargoes of last resort are destined for Europe and the Western Hemisphere. The margins are much lower in Europe and can be negative in the Americas.

Add your comment.

DocumentId: 2008497, ~/Articles/ArticleHandler.aspx, 4/19/2014 6:40:10 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement