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 Weyerhaeuser (NYSE: WY) 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 Weyerhaeuser.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% (20.5%) Fail
  1-Year Revenue Growth > 12% 18.3% Pass
Margins Gross Margin > 35% 18.3% Fail
  Net Margin > 15% 20.9% Pass
Balance Sheet Debt to Equity < 50% 107.5% Fail
  Current Ratio > 1.3 4.11 Pass
Opportunities Return on Equity > 15% 32% Pass
Valuation Normalized P/E < 20 78.65 Fail
Dividends Current Yield > 2% 2.7% Pass
  5-Year Dividend Growth > 10% (31.6%) Fail
  Total Score   5 out of 10

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

With a score of five, Weyerhaeuser gives investors a mixed bag. The company underwent a big transformation last year, and after a tough time, its industry may well be looking up.

Weyerhaeuser is one of the few large U.S. forest products companies. With the upswing in commodities, interest in timberland -- an asset that produces dependable recurring income yet has low correlations to stocks and other popular asset classes -- has risen substantially. Earlier this year, hedge fund manager GMO said that it believes timber will outperform the other 11 major asset classes it tracks.

Unfortunately for investors, real estate investment trusts that own timberland don't necessarily track the price of timber. Weyerhaeuser transformed itself from an operating company to a REIT last year in order to reap the attendant tax benefits, joining Plum Creek Timber (NYSE: PCL), Potlatch (NYSE: PCH), and Rayonier (NYSE: RYN).

Yet Weyerhaeuser's operating business may be of more interest than merely its land holdings. Last month, International Paper (NYSE: IP) made an unsolicited buyout offer for Temple-Inland (NYSE: TIN), a wood and paper products company that has similarly considered REIT status.

Nevertheless, even in the timber REIT space, Weyerhaeuser doesn't look like the best bet. Plum Creek, Potlatch, and Rayonier all have more attractive dividend yields at more attractive valuations. Until investors bid shares back in line with its competitors, Weyerhaeuser will have trouble becoming a perfect 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 Weyerhaeuser 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 written puts on Plum Creek Timber. 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.