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 Intel
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 Intel.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||8.8%||Fail|
|1-Year Revenue Growth > 12%||23.8%||Pass|
|Margins||Gross Margin > 35%||62.5%||Pass|
|Net Margin > 15%||24.0%||Pass|
|Balance Sheet||Debt to Equity < 50%||16.0%||Pass|
|Current Ratio > 1.3||2.15||Pass|
|Opportunities||Return on Equity > 15%||27.1%||Pass|
|Valuation||Normalized P/E < 20||13.02||Pass|
|Dividends||Current Yield > 2%||3.2%||Pass|
|5-Year Dividend Growth > 10%||14.4%||Pass|
|Total Score||9 out of 10|
Source: S&P Capital IQ. Total score = number of passes.
Since we looked at Intel last year, the semiconductor giant has kept its near-perfect score of nine. Even as some raise concerns about a declining PC market, Intel is making strides toward being a bigger presence in mobile-device chips.
Intel has been running on all cylinders for the past year. With a nice bump in its stock price, it's clear that the chip leader in PCs has been doing an effective job monetizing its dominant position in the industry, especially with emerging-market growth helping power PC sales. In its most recent quarterly report, Intel reported sales that rose 22% and earnings that beat estimates.
One reason for Intel's dominance is that it has in-house production capabilities. By contrast, Advanced Micro Devices
The big criticism that Intel has gotten is that it's behind in mobile devices. Certainly, rival ARM Holdings
The growth that a serious entry into the mobile market would create could easily give Intel its final point on the way to perfection. With a healthy and growing dividend, Intel truly stands out from the crowd, and that's why I'm making a CAPScall for the chip giant to continue outperforming the overall market in the future.
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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