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 Janus Capital
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 Janus Capital.
|Factor||What We Want to See||Actual||Pass or Fail?|
|Growth||5-Year Annual Revenue Growth > 15%||3.2%||Fail|
|1-Year Revenue Growth > 12%||19.7%||Pass|
|Margins||Gross Margin > 35%||69%||Pass|
|Net Margin > 15%||15.7%||Pass|
|Balance Sheet||Debt to Equity < 50%||63.2%||Fail|
|Current Ratio > 1.3||2.12||Pass|
|Opportunities||Return on Equity > 15%||14.2%||Fail|
|Valuation||Normalized P/E < 20||16.06||Pass|
|Dividends||Current Yield > 2%||0.3%||Fail|
|5-Year Dividend Growth > 10%||0%||Fail|
|Total Score||5 out of 10|
Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.
Janus scores five points, falling in the middle of our scale. The mutual fund management company has gone through big ups and downs in its history, but recently, things are looking up for the company.
In 2004, Janus found itself in the middle of a huge scandal. Then-New York attorney general Eliot Spitzer accused Janus and several other companies, including Bank of America
Janus has bounced back somewhat from its past. After enduring the market meltdown, the two-year bull market has helped increase revenue. But that growth is at a slower pace than competitors Franklin Resources
Janus isn't the scandal-plagued shop it once was, but neither has it returned to its heyday during the tech boom. In order to move forward, Janus needs to distinguish itself from the mutual fund crowd. Until it does, it won't become the perfect stock.
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.
Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. Federated Investors is a Motley Fool Stock Advisor choice. The Fool owns shares of Bank of America and T. Rowe Price, and through a separate account in its Rising Star Portfolios also has a short position on Bank of America. 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.