Everyone would love to find the perfect stock. But will you ever really find a stock that gives you everything you could possibly want?

One thing's for sure: If you don't look, you'll never find truly great investments. So let's first take a look at what you'd want to see from a perfect stock, and then decide if Altria (NYSE: MO) fits the bill.

The quest for perfection
When you're looking for great stocks, you have to do your due diligence. It's not enough to rely on a single measure, because a stock that looks great based on one factor may turn out to be horrible in other ways. The best stocks, however, excel in many different areas, which all come together to make up a very attractive picture.

Some of the most basic yet important things to look for in a stock are:

  • 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 don't mean anything if a company can't turn them into profits. Strong margins ensure a company is able to turn revenue into profit.
  • Balance sheet. Debt-laden companies have banks and bondholders competing with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Companies need to be able to turn their resources into profitable business opportunities. Return on equity helps measure how well a company is finding those opportunities.
  • Valuation. You can't afford to pay too much for even the best companies. Earnings multiples are simple, but using normalized figures gives you a sense of how valuation fits into a longer-term context.
  • Dividends. Investors are demanding tangible proof of profits, and there's nothing more tangible than getting a check every three months. 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 Altria.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 6.4%* fail
  1-Year Revenue Growth > 12% 0.8% fail
Margins Gross Margin > 35% 53.6% pass
  Net Margin > 15% 20.7% pass
Balance Sheet Debt to Equity < 50% 269.5% fail
  Current Ratio > 1.3 1.68 pass
Opportunities Return on Equity > 15% 88.0% pass
Valuation Normalized P/E < 20 14.82 pass
Dividends Current Yield > 2% 6.2% pass
  5-Year Dividend Growth > 10% 12.8%** pass
  Total Score   7 out of 10

Source: Capital IQ, a division of Standard and Poor's. *Reflects adjusted figures accounting for spinoffs of Kraft and Philip Morris International. **Annualized dividend growth since June 2008, which was first dividend after Philip Morris International spinoff. Total score = number of passes.

Altria scores an impressive 7. Moreover, even though the company loses points for its lack of strong revenue growth, it's hard to fault Altria for it. With such a large, mature business, it's no surprise that the company falls short on growth numbers.

Altria has gone from a diversified giant to a pure play on the U.S. tobacco market. Having divested itself of Philip Morris International (NYSE: PM) and Kraft Foods (NYSE: KFT), Altria is a much different company, and you have to be careful comparing financials from today with previous results. The company now gets all of its revenue domestically. But some things don't change: Cigarettes remain the dominant business segment, accounting for nearly 90% of revenue.

The tobacco business is quite lucrative, with competitors Reynolds American (NYSE: RAI) and Vector Group (NYSE: VGR) also pulling down healthy profits. With its dominant Marlboro brand, however, Altria sports higher profit margins than Reynolds or Vector. As long as the industry's ever-present legal battles remain relatively dormant, Altria will continue to be a cash-producing machine that has rewarded shareholders for decades.

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.