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 Manitowoc (NYSE: MTW) 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 Manitowoc.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 6.9% Fail
  1-Year Revenue Growth > 12% (13.2%) Fail
Margins Gross Margin > 35% 24.4% Fail
  Net Margin > 15% (2.3%) Fail
Balance Sheet Debt to Equity < 50% 425.5% Fail
  Current Ratio > 1.3 1.13 Fail
Opportunities Return on Equity > 15% (12.6%) Fail
Valuation Normalized P/E < 20 NM NM
Dividends Current Yield > 2% 0.4% Fail
  5-Year Dividend Growth > 10% 2.7% Fail
  Total Score   0 out of 9

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

Manitowoc doesn't score a single point on our stock criteria. But while that terrible score reflects the company's struggles during the recession, investors expect a lot more from the company in the near future.

As a maker of cranes and other construction equipment, Manitowoc was definitely among the most obvious victims of the global recession. Between the end of 2007 and the stock market lows in early 2009, Manitowoc shares lost 95% of their value, with the company almost drowning in its huge debt load.

But the recovery has brought hope for Manitowoc. Earnings have rebounded recently, and investors have bid up the shares accordingly, although they still languish well below pre-recession levels. Yet revenue hasn't bounced as quickly as competitors like Deere (NYSE: DE) and Caterpillar (NYSE: CAT), and while Terex (NYSE: TEX) also has posted a net loss over the past 12 months, it at least has a much lighter debt burden.

Much depends on the health and stability of the recovery going forward. If capital spending goes back up, then Manitowoc is poised to rise from the ashes and score some points on our perfect-stock test. If not, then the debt monster may well overcome the industrial giant.

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 Manitowoc 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.