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 Buckeye Partners (NYSE: BPL) 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 Buckeye Partners.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 50.5% Pass
  1-Year Revenue Growth > 12% 78.0% Pass
Margins Gross Margin > 35% 13.7% Fail
  Net Margin > 15% 1.4% Fail
Balance Sheet Debt to Equity < 50% 128% Fail
  Current Ratio > 1.3 1.21 Fail
Opportunities Return on Equity > 15% 14.0% Fail
Valuation Normalized P/E < 20 13.22 Pass
Dividends Current Yield > 2% 6.2% Pass
  5-Year Dividend Growth > 10% 6.2% Fail
       
  Total Score   4 out of 10

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.

Buckeye Partners can only drill up a score of 4. The energy producer has seen phenomenal growth in recent years, but with a weak balance sheet and margin concerns, Buckeye still has some work to do to reach perfection.

Buckeye is a master limited partnership, a specialized investment vehicle that many energy companies use to give investors favorable tax benefits. In Buckeye's case, it combines petroleum and gas pipelines and natural gas storage, as well as a services division specializing in terminal and pipeline maintenance and operations.

Buckeye's biggest advantage over its peers is its swift growth. Buckeye closely resembles Enterprise Products Partners (NYSE: EPD) in many ways, including relatively similar debt levels and dividend yields along with low earnings multiples. But Buckeye's long-term growth rate has been more than double that of Enterprise. Slower peers such as Enbridge Energy Partners (NYSE: EEP) and Kinder Morgan Energy Partners (NYSE: KMP) don't even come close on the growth front and have higher debt levels to boot.

Like other MLPs, Buckeye's success relies on energy prices going forward. If natural gas eventually rebounds from its long lull to join oil prices on the rise, then Buckeye could see its prospects improve dramatically. Until then, investors will have to make do with Buckeye's nice payout.

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.

Click here to add Buckeye Partners to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

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. Enterprise Products Partners is a Motley Fool Income Investor choice. 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.