Has Navios Maritime Holdings 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 Navios Maritime Holdings (NYSE: NM  ) 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 Navios Maritime Holdings.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-year annual revenue growth > 15%

(4.1%)

Fail

 

1-year revenue growth > 12%

(10.6%)

Fail

Margins

Gross margin > 35%

37.2%

Pass

 

Net margin > 15%

26.9%

Pass

Balance sheet

Debt to equity < 50%

105.3%

Fail

 

Current ratio > 1.3

2.51

Pass

Opportunities

Return on equity > 15%

13.3%

Fail

Valuation

Normalized P/E < 20

4.64

Pass

Dividends

Current yield > 2%

5.3%

Pass

 

5-year dividend growth > 10%

(3.7%)

Fail

       
 

Total score

 

5 out of 10

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

Since we looked at Navios Maritime Holdings last year, the company hasn't been able to regain any of the three points it dropped from 2011 to 2012. The stock hasn't gone far either, rising just 5% over the past year, although it has regained a lot of ground for extensive losses late last year.

For years, Navios has struggled as a glut of vessels has pushed the Baltic Dry Bulk index to rock-bottom levels, jeopardizing profitability around the industry. Navios has actually performed quite well during the slump, maintaining positive earnings even as rival DryShips (NASDAQ: DRYS  ) has had to rely on secondary offerings of subsidiary Ocean Rig's shares to provide needed cash.

But Navios has benefited lately from growing optimism about shipping. One research firm has called for shipping rates to triple in the next two years as growing global demand finally starts catching up with overcapacity. Yet as Fool analyst Blake Bos recently discussed, shadow inventory of vessels within government and company fleets could make those bullish calls premature.

One challenge Navios faces is high debt. Diana Shipping (NYSE: DSX  ) , whose balance sheet is much cleaner than Navios', has flexibility to take advantage of opportunities to expand and grab strategically important assets on the cheap. But Diana doesn't pay a dividend, while Navios has maintained a healthy yield for years, paying more than 5% right now.

For Navios to improve, it needs shipping rates to return to more normal levels. Whenever that happens, Navios should start getting a lot closer to perfection.

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.

The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

Click here to add Navios Maritime Holdings to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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