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 Tyson Foods (NYSE: TSN) 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 Tyson Foods.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 3.3% Fail
  1-Year Revenue Growth > 12% 11.2% Fail
Margins Gross Margin > 35% 8.7% Fail
  Net Margin > 15% 3.0% Fail
Balance Sheet Debt to Equity < 50% 43.4% Pass
  Current Ratio > 1.3 1.99 Pass
Opportunities Return on Equity > 15% 17.1% Pass
Valuation Normalized P/E < 20 7.41 Pass
Dividends Current Yield > 2% 0.9% Fail
  5-Year Dividend Growth > 10% 0.0% Fail
       
  Total Score   4 out of 10

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

With four points, Tyson Foods doesn't lay a goose egg, but it isn't perfect either. The meat producer is facing challenges in the industry which could prove detrimental to the company's long-term health.

It's a tough environment for companies that sell products like chicken, beef, and pork. Because the price of feed has risen, it costs more for Tyson and its competitors to raise animals, which is squeezing already thin margins.

The logical thing for Tyson to do would be to cut production, thereby hopefully letting it pass on some of those higher costs to consumers. But in the chicken market, despite an acknowledged oversupply of chicken, neither Tyson, Sanderson Farms (Nasdaq: SAFM), nor Pilgrim's Pride (NYSE: PPC) has been willing to give up market share by being the first to cut back.

One silver lining for Tyson comes from the recent disasters in Japan. Because Japanese meat companies were hit hard by the tragedy, Smithfield Foods (NYSE: SFD) has an opportunity to ship more pork to Japan to meet demand. That in turn reduces supplies in the U.S., which could help Tyson.

As long as high costs of feed crops persist, Tyson isn't going to reach perfection. Right now, the key is for Tyson to survive what's shaping up to be a nasty price war in the chicken market. If it can do that, then things may improve in the future.

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 Tyson Foods 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. 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.