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 Thompson Creek Metals
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 Thompson Creek Metals.
|Factor||What We Want to See||Actual||Pass or Fail?|
|Growth||5-Year Annual Revenue Growth > 15%||42.2%||Pass|
|1-Year Revenue Growth > 12%||59.5%||Pass|
|Margins||Gross Margin > 35%||49.9%||Pass|
|Net Margin > 15%||35.8%||Pass|
|Balance Sheet||Debt to Equity < 50%||1.3%||Pass|
|Current Ratio > 1.3||4.00||Pass|
|Opportunities||Return on Equity > 15%||18.6%||Pass|
|Valuation||Normalized P/E < 20||9.21||Pass|
|Dividends||Current Yield > 2%||0.0%||Fail|
|5-Year Dividend Growth > 10%||0.0%||Fail|
|Total Score||8 out of 10|
Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.
With a score of 8, Thompson Creek Metals mines up a strong performance, lacking only a dividend to make shareholders perfectly happy. The miner has gone through some big ups and downs recently, but it is taking steps to solidify its status as an important stock in the sector.
Thompson primarily produces molybdenum, a metal that's important for steel production. With applications ranging from aircraft parts to rifle barrels, the metal plays a key role in several industries. That has made Thompson's stock highly correlated to the global economy, as shares have bounced as low as $3 and as high as $25 in recent years.
Last year, Thompson acquired Terrane Metals, adding exposure to gold and copper to its molybdenum base. That made it less like pure-play competitor General Moly
Perhaps what's most amazing about Thompson is that despite its presence in the hot metals sector, it carries a rock-bottom valuation. Even large, slower-growth miners Newmont Mining
Mining is a volatile sector. But by making the right strategic moves at the right time, Thompson has gotten close to perfection. That's worth a closer look for any investor who's willing to accept the risk of commodities-based stocks.
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."