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 MBIA (NYSE: MBI) 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 MBIA.

Factor What We Want to See Actual Pass or Fail?
Growth 5-Year Annual Revenue Growth > 15% (11.7%) Fail
  1-Year Revenue Growth > 12% NM NM
Margins Gross Margin > 35% 97.3% Pass
  Net Margin > 15% 31.3% Pass
Balance Sheet Debt to Equity < 50% 907.9% Fail
  Current Ratio > 1.3 0.71 Fail
Opportunities Return on Equity > 15% 25.2% Pass
Valuation Normalized P/E < 20 5.59 Pass
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
       
  Total Score   4 out of 9

Source: Capital IQ, a division of Standard and Poor's. NM = not meaningful; MBIA's revenue went from a negative number in 2010 to a positive number in 2011. Total score = number of passes.

With only four points, MBIA can't ensure perfection for its shareholders. The company is still reeling from the crisis that threatened its very survival, although it has come a long way since the dark days of the financial meltdown.

MBIA is best known for insuring municipal bonds and asset-backed securities. For years, that was a relatively stable and profitable business. But during the financial crisis, the huge amount of defaults on mortgage-backed securities brought staggering losses for the company, as well as competitors Radian Group (NYSE: RDN) and PMI Group (NYSE: PMI). In fact, its chief rival, Ambac Financial, remains locked in bankruptcy, with shareholders having lost nearly their entire investment.

But MBIA didn't die. In fact, it has largely succeeded in restructuring itself, with a goal toward bringing in more new business. Revenue hasn't recovered to pre-crisis levels, but those big losses have returned to modest profits.

Just yesterday, MBIA announced promising news that it was dropping a lawsuit against Bank of America (NYSE: BAC), in which it hoped to recover payouts on $5.7 billion in credit-default swaps and collateralized debt obligations. The companies appear to be close to a settlement, and if MBIA reaches an agreement similar to the $1.6 billion settlement that B of A made with Assured Guaranty (NYSE: AGO) to settle $8.5 billion in claims, it could mean a big payday for MBIA.

MBIA is still far from its old self, and the financial insurance business is still full of risk, as the company's high leverage levels indicate. MBIA still has some way to go before it gets close to perfection, but for many investors, the company just managing to survive has been impressive.

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 MBIA 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 Fool owns shares of and has opened a short position on Bank of America. 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.