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 NewMarket (NYSE: NEU) 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 NewMarket.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 10.9% Fail
  1-Year Revenue Growth > 12% 20.3% Pass
Margins Gross Margin > 35% 28.1% Fail
  Net Margin > 15% 9.7% Fail
Balance Sheet Debt to Equity < 50% 50.3% Fail
  Current Ratio > 1.3 3.05 Pass
Opportunities Return on Equity > 15% 37.1% Pass
Valuation Normalized P/E < 20 14.39 Pass
Dividends Current Yield > 2% 1.4% Fail
  5-Year Dividend Growth > 10% 67.1% Pass
       
  Total Score   5 out of 10

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

NewMarket weighs in with a midrange score of 5. The chemical company isn't nearly as well-known as some of its rivals, but its lubricant and fuel additive business is especially timely with oil prices at high levels.

NewMarket produces petroleum additives that customers use to make lubricating oils more effective and durable. In addition, its fuel additives enhance gasoline and diesel fuel performance to reduce emissions and raise fuel economy.

As you'd imagine, anything that can make oil-based products better is in high demand right now. The company has a major customer in Royal Dutch Shell (NYSE: RDS-A), which has represented more than 10% of sales during each of the past three years. Overall strength has helped NewMarket produce huge earnings gains recently.

But NewMarket faces stiff competition. Lubrizol (NYSE: LZ), which Berkshire Hathaway (NYSE: BRK-B) targeted earlier this year for a buyout in the now-infamous Sokol scandal, is a key competitor. Moreover, big oil companies like ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), and Shell also have their own joint ventures and subsidiaries to make products similar to what NewMarket sells.

Given Berkshire's buyout of Lubrizol, investors have to wonder if some oil giant will buy out NewMarket. Even if that doesn't happen, though, high energy costs should keep NewMarket's products in demand for years to come. That doesn't make NewMarket perfect, but it's worthy of a closer look.

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 NewMarket 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 owns shares of Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway and Chevron. 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.