Has Teck Resources 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 Teck Resources (NYSE: TCK  ) 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 Teck Resources.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 11.6% Fail
  1-Year Revenue Growth > 12% 11.3% Fail
Margins Gross Margin > 35% 38.7% Pass
  Net Margin > 15% 16.9% Pass
Balance Sheet Debt to Equity < 50% 38.7% Pass
  Current Ratio > 1.3 3.48 Pass
Opportunities Return on Equity > 15% 11.5% Fail
Valuation Normalized P/E < 20 7.77 Pass
Dividends Current Yield > 2% 2.7% Pass
  5-Year Dividend Growth > 10% (4.4%) Fail
       
  Total Score   6 out of 10

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

Since we looked at Teck Resources last year, the company has maintained its six-point score. But the stock has lost about a quarter of its value as the general malaise in the commodities realm has hurt the company.

Many investors tend to focus on precious metals like gold and silver. But Teck Resources has had great success with more pedestrian products, including copper and coal. During the huge expansion in emerging-market economies, Teck's mined metals were greatly in demand, and thanks in part to a big ramp-up in production at its Antamina joint venture with BHP Billiton (NYSE: BHP  ) , Teck has been able to boost supply to take advantage of that trend.

Unfortunately, the slowdown in China has hit the metals markets hard. Just as Freeport-McMoRan Copper & Gold (NYSE: FCX  ) has struggled with lackluster copper prices, Teck reported a 14% drop in realized copper prices during its second quarter. Moreover, on the metallurgical coal side of the business, both Alpha Natural Resources (NYSE: ANR  ) and Teck have struggled with weaker worldwide steel production. It also hasn't helped matters that labor problems with railroad Canadian Pacific (NYSE: CP  ) hurt Teck's coal production.

Moreover, scandals in the futures markets have reduced confidence in commodities. With Fool contributor and metals expert Christopher Barker pointing to widespread manipulation of commodity markets, it sometimes appears as if Teck is facing a rigged table.

For Teck to improve, it needs emerging markets to awaken and for demand for materials to resume. With recent calls for a major Chinese stimulus program, Teck may have gotten the catalyst it needs to try to move upward toward perfection once more.

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.

If you like investing in metals, we've got a stock you should really take a look at. 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 Teck Resources 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 Freeport-McMoRan Copper & Gold. 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 (1) | 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.

Add your comment.

DocumentId: 2013224, ~/Articles/ArticleHandler.aspx, 4/20/2014 6:28:05 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...

Today's Market

updated 2 days ago Sponsored by:
DOW 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 2.54 0.14%
NASD 4,095.52 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

4/17/2014 4:00 PM
TCK $22.07 Down -0.09 -0.41%
Teck Resources Lim… CAPS Rating: ***
ANR $4.40 Up +0.06 +1.38%
Alpha Natural Reso… CAPS Rating: **
BHP $71.15 Up +0.12 +0.17%
BHP Billiton Limit… CAPS Rating: ***
CP $148.18 Up +0.92 +0.62%
Canadian Pacific R… CAPS Rating: **
FCX $33.01 Down +0.00 +0.00%
Freeport-McMoRan C… CAPS Rating: ****

Advertisement