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 U.S. Steel (NYSE: X) 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 U.S. Steel.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 5.6% Fail
  1-Year Revenue Growth > 12% 50% Pass
Margins Gross Margin > 35% 6% Fail
  Net Margin > 15% (2.2%) Fail
Balance Sheet Debt to Equity < 50% 95.5% Fail
  Current Ratio > 1.3 1.57 Pass
Opportunities Return on Equity > 15% (9.7%) Fail
Valuation Normalized P/E < 20 NM NM
Dividends Current Yield > 2% 0.5% Fail
  5-Year Dividend Growth > 10% (12.9%) Fail
       
  Total Score   2 out of 9

Source: Capital IQ, a division of Standard and Poor's. NM = not meaningful due to negative earnings. Total score = number of passes.

With a score of only 2, U.S. Steel isn't building a strong framework for its shares. The steelmaker has faced tough times for years, calling into question the entire foundation of the sluggish U.S. economic recovery.

As one of the largest steel producers in the world, you might expect U.S. Steel to act as a bellwether for the industry as a whole. Yet after reaping huge profits during the boom years of economic expansion, immense losses took their place in 2009, forcing it to slash its dividend, and while the company has clawed back recently, it is still losing money . Even though competitors -- including fellow giants ArcelorMittal (NYSE: MT) and Posco (NYSE: PKX) and smaller players like Nucor (NYSE: NUE) -- have reported similar concerns, they at least have been profitable recently.

In addition to the tough environment, longer-term concerns exist. The automobile segment is incredibly important for U.S. Steel, but with fuel efficiency becoming ever-more important, aluminum maker Alcoa (NYSE: AA) is fighting U.S. Steel and its peers to replace steel with the lighter metal.

After a long, tough road, things may have hit bottom for U.S. Steel. As fellow Fool Dan Dzombak recently reported, U.S. Steel's economic-value-added metric accelerated faster than that of peers like Nucor and Allegheny Technologies (NYSE: ATI). That won't bring U.S. Steel back toward perfection anytime soon, but it's a ray of sunshine for an otherwise dreary stock.

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 U.S. Steel 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. The Motley Fool owns shares of Nucor. Motley Fool newsletter services have recommended buying shares of Nucor. 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.