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 Clean Harbors
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 Clean Harbors.
|
Factor |
What We Want to See |
Actual |
Pass or Fail? |
|---|---|---|---|
| Growth | 5-Year Annual Revenue Growth > 15% | 18.8% | Pass |
| 1-Year Revenue Growth > 12% | 20.8% | Pass | |
| Margins | Gross Margin > 35% | 30.2% | Fail |
| Net Margin > 15% | 6.4% | Fail | |
| Balance Sheet | Debt to Equity < 50% | 63.1% | Fail |
| Current Ratio > 1.3 | 2.66 | Pass | |
| Opportunities | Return on Equity > 15% | 14.8% | Fail |
| Valuation | Normalized P/E < 20 | 27.11 | Fail |
| Dividends | Current Yield > 2% | 0% | Fail |
| 5-Year Dividend Growth > 10% | 0% | Fail | |
| Total Score | 3 out of 10 |
Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.
With only three points, Clean Harbors doesn't clean up on our scorecard. But the company is still benefiting from being in exactly the right place at the right time last year, and for good or ill, business for the clean-up specialist is likely to stay good for the foreseeable future.
Clean Harbors claims the status of the largest hazardous-waste disposal company in North America, serving the majority of Fortune 500 companies both close to home and around the world. Although the company does everything from garbage and recycling management to very specialized hazmat processes -- it helped deal with anthrax threats in the early 2000s and with clean-up projects after September 11 -- Clean Harbors has built a strong reputation with its spill clean-up business.
Obviously, cleaning up spills has been in high demand lately. The company worked with the federal government on contamination resulting from Hurricane Katrina, and BP
Earlier this week, investors rewarded Clean Harbors for a job well done, vaulting shares higher after the company announced both strong earnings and increased guidance. Until the company pays a dividend, sports somewhat better margins and internal returns, and carries a slightly less expensive valuation, Clean Harbors won't reach perfection, but for shareholders who want to feel good about what their company does, Clean Harbors makes a great addition to a stock portfolio.
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 Clean Harbors 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.
