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 ManTech International (Nasdaq: MANT ) 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 ManTech International.
What We Want to See
Pass or Fail?
|Growth||5-year annual revenue growth > 15%||20.9%||Pass|
|1-year revenue growth > 12%||21.8%||Pass|
|Margins||Gross margin > 35%||14.9%||Fail|
|Net margin > 15%||4.8%||Fail|
|Balance sheet||Debt to equity < 50%||19.4%||Pass|
|Current ratio > 1.3||1.64||Pass|
|Opportunities||Return on equity > 15%||13.9%||Fail|
|Valuation||Normalized P/E < 20||9.81||Pass|
|Dividends||Current yield > 2%||2.3%||Pass|
|5-year dividend growth > 10%||NM||NM|
|Total Score||6 out of 9|
Source: Capital IQ, a division of Standard & Poor's. NM = not meaningful; ManTech just initiated a dividend in May 2011. Total score = number of passes.
With six points, ManTech International has a strong showing. The company straddles the fence between technology and national security, which has left it exposed to uncertainties about federal government spending.
Defense contractors have seen a lot of pressure lately as military spending comes under scrutiny in budget negotiations. That has held back big companies such as Raytheon (NYSE: RTN ) and General Dynamics (NYSE: GD ) , both of which have seen order backlogs drop in the past year.
But ManTech has a niche that isn't likely to disappear. Ever-more sophisticated technology from sources including drone-maker AeroVironment (Nasdaq: AVAV ) and robotic bomb-disarmer iRobot (Nasdaq: IRBT ) makes it possible to complete missions without putting troops in harm's way. By providing IT support and systems testing, including mission-critical cybersecurity measures, ManTech makes sure that sophisticated technology doesn't fail at crucial moments. And compared to rival SAIC (NYSE: SAI ) , ManTech has grown at a much faster pace and recently started paying a healthy dividend.
Because of its niche, ManTech has the potential to be a winner even in a budget-cutting environment. With razor-thin margins, it isn't a perfect stock, but ManTech might help you protect your portfolio as much as its products protect the nation.
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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Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our "13 Steps to Investing Foolishly."