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 whether Bunge
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 Bunge.
|
Factor |
What We Want to See |
Actual |
Pass or Fail? |
|---|---|---|---|
| Growth | 5-Year Annual Revenue Growth > 15% | 14.1% | Fail |
| 1-Year Revenue Growth > 12% | 10.4% | Fail | |
| Margins | Gross Margin > 35% | 5.6% | Fail |
| Net Margin > 15% | 5.3% | Fail | |
| Balance Sheet | Debt to Equity < 50% | 35.8% | Pass |
| Current Ratio > 1.3 | 1.70 | Pass | |
| Opportunities | Return on Equity > 15% | 21.2% | Pass |
| Valuation | Normalized P/E < 20 | 18.84 | Pass |
| Dividends | Current Yield > 2% | 1.4% | Fail |
| 5-Year Dividend Growth > 10% | 9.2% | Fail | |
| Total Score | 4 out of 10 |
Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.
With just four points, Bunge hasn't yet grown to perfection. But the farm products company finds itself in the middle of a hot sector.
Bunge helps move farm products from farms to their eventual end users. The company buys and sells grain and oilseed, using some of it to make animal feed and consumer-quality food oil, while processing other crops to make the raw ingredients that food companies like Kellogg
Times have been good for Bunge, with first-quarter revenue up 18% from year-ago levels and net income more than tripling. The growth has inspired Bunge to expand, working with SEACOR
So far, global demand for food has helped Bunge. But exposure to commodities may hurt Bunge if recent trends reverse. The company is more vulnerable to falling commodity prices than competitors that sell directly to consumers.
Bunge falls just short on a number of metrics we follow, so it's easy to foresee the stock jumping up to a better score in the near future. It may not have everything you'd want to see in a perfect stock, but Bunge is in the right industry at the right time .
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.
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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.
