Has Alexander & Baldwin 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 Alexander & Baldwin (NYSE: ALEX  ) 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 Alexander & Baldwin.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 1.6% Fail
  1-Year Revenue Growth > 12% 6.7% Fail
Margins Gross Margin > 35% 15.6% Fail
  Net Margin > 15% 2.0% Fail
Balance Sheet Debt to Equity < 50% 49.8% Pass
  Current Ratio > 1.3 0.99 Fail
Opportunities Return on Equity > 15% 4.9% Fail
Valuation Normalized P/E < 20 37.45 Fail
Dividends Current Yield > 2% 2.6% Pass
  5-Year Dividend Growth > 10% 5.3% Fail
  Total Score   2 out of 10

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

Since we looked at Alexander & Baldwin last year, the company has dropped a point. Slower growth shows exactly how challenging the economic environment has been for Alexander & Baldwin, whose shares have languished over the past year.

Alexander & Baldwin provides investors with a unique combination of businesses tied to the Hawaiian economy. The company owns income properties and is involved in agriculture on the islands, as well as having shipping operations that concentrate on moving goods between Hawaii and the U.S. mainland.

The shipping industry has seen some tough times lately, as dry-bulk shippers DryShips (Nasdaq: DRYS  ) and Navios Maritime Holdings (NYSE: NM  ) have seen their shares plunge as high debt levels and a glut in capacity have combined to send shipping rates down. Even though Diana Shipping (NYSE: DSX  ) boasts lower debt and better returns on assets, it hasn't been able to avoid the downturn. Alexander & Baldwin, on the other hand, is largely protected by the Jones Act, which regulates shipping between Hawaii and the West Coast of the U.S. and keeps out foreign competition.

Still, last December, Alexander & Baldwin decided that the market wasn't valuing the sum of its parts correctly and therefore announced it would separate into two separate businesses. By spinning off its Matson shipping and logistics division into a separate entity, Alexander & Baldwin will focus on its real estate and agricultural businesses going forward. The split is expected to happen in the second half of this year.

Shareholders need to be aware that the surviving Alexander & Baldwin will look a lot different after the split. But the move could help both parts improve their lot by allowing them to focus on their respective strengths -- and potentially earn more recognition of those strengths from investors.

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.

Alexander & Baldwin isn't the perfect stock, but we've got some ideas you may like better. Let me invite you to learn about three smart long-term stock plays in the Fool's latest special report. It's yours for the taking and is absolutely free, but don't miss out -- click here and read it today.

Click here to add Alexander & Baldwin 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 in this article. 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.

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10/26/2016 2:54 PM
ALEX $38.11 Down -0.20 -0.52%
Alexander and Bald… CAPS Rating: *****
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DSX $2.48 Down -0.03 -1.20%
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NM $1.17 Down -0.01 -0.85%
Navios Maritime Ho… CAPS Rating: ***