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 Taseko Mines (NYSE: TGB ) 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 Taseko Mines.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||4.9%||Fail|
|1-Year Revenue Growth > 12%||8.2%||Fail|
|Margins||Gross Margin > 35%||28.3%||Fail|
|Net Margin > 15%||6.3%||Fail|
|Balance Sheet||Debt to Equity < 50%||50.3%||Fail|
|Current Ratio > 1.3||4.91||Pass|
|Opportunities||Return on Equity > 15%||3.6%||Fail|
|Valuation||Normalized P/E < 20||27.32||Fail|
|Dividends||Current Yield > 2%||0%||Fail|
|5-Year Dividend Growth > 10%||0%||Fail|
|Total Score||1 out of 10|
Source: S&P Capital IQ. Total score = number of passes.
Since we looked at Taseko Mines last year, the company has seen its score plunge by three points. That makes a drop of seven full points in just two years, and its shares have essentially gone nowhere in the past year in a challenging market for mining companies.
Taseko's mix of gold, copper, and molybdenum has served it well during the big global industrial boom of the past decade. Between rising prices for gold, resulting in part from concerns about long-term monetary devaluation, and strength in copper and other base metals from construction and infrastructure demand, Taseko has taken full advantage since the early 2000s.
But lately, Taseko has had to deal with some setbacks. A slowdown in growth, especially in China, sent the entire base-metals industry falling, with fellow copper producers Freeport-McMoRan (NYSE: FCX ) and Southern Copper (NYSE: SCCO ) dropping to their lows of the year as a result. Taseko in particular has had to shut down one of its mills, deal with bad weather, and also cited what Fool contributor Rich Duprey terms as "difficult ore characteristics" as justification for some of its woes.
Looking forward, Taseko will continue to find itself linked to the world's economic prospects. For instance, when the Chinese government announced earlier this month a $150 billion plan to boost infrastructure spending, Taseko and peers Thompson Creek Metals (NYSE: TC ) and Tech Resources (NYSE: TCK ) soared on the news. Given Thompson's molybdenum exposure and Tech's rich resources of copper and other metals, they both seem poised to improve alongside Taseko if China follows through on its promises.
For Taseko to improve, it needs conditions in the global metals markets to get better. If it can then start executing better on its internal operations, Taseko could easily make back a lot of the ground it has lost in its efforts to reach 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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