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 Amgen (Nasdaq: AMGN) 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 Amgen.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 1.8% Fail
  1-Year Revenue Growth > 12% 3.5% Fail
Margins Gross Margin > 35% 84.9% Pass
  Net Margin > 15% 23.6% Pass
Balance Sheet Debt to Equity < 50% 112.6% Fail
  Current Ratio > 1.3 4.80 Pass
Opportunities Return on Equity > 15% 17.1% Pass
Valuation Normalized P/E < 20 19.87 Pass
Dividends Current Yield > 2% 2.1% Pass
  5-Year Dividend Growth > 10% NM NM
       
  Total Score   6 out of 9

Source: S&P Capital IQ. NM = not meaningful; Amgen declared its first dividend in Dec. 2011. Total score = number of passes.

Since we looked at Amgen last year, the biotech giant has picked up a point. The company's landmark decision to start paying a dividend pushed its score up, and it's a great sign of strength for shareholders.

Once upon a time, biotech companies were all tiny startups. But over time, the cream of the crop has risen to take its place among the top health-care stocks in the market. Gilead Sciences (Nasdaq: GILD) has ridden the demand for HIV and hepatitis drugs to huge gains in recent years, and its move into the cancer field could ignite a second stage of growth. Both Gilead and Amgen have turned into huge cash cows.

But Amgen is so big that it has started returning money to shareholders the old-fashioned way: through dividends. It's something that other companies aren't doing, as they instead focus on big acquisitions. Gilead, for instance, picked up fellow hep C company Pharmasset earlier this month, using up a whopping $11 billion in the process. Celgene (Nasdaq: CELG), which some have seen as a potential takeover target itself, bought privately held Avila Therapeutics at the much cheaper price of $350 million upfront plus another $575 million in potential milestone payments tied to drug success.

Still, Amgen hasn't been afraid to join the acquisition party. Last week, it agreed to buy Micromet (Nasdaq: MITI) for $1.16 billion, which should help the company expand its cancer focus somewhat.

Amgen will find it hard to restart its growth engines enough to get back to fast growth. But paying a dividend is a step in the right direction, showing that Amgen has reached full maturity as a lasting player in the health-care space.

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.

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