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 Boeing
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 Boeing.
Factor |
What We Want to See |
Actual |
Pass or Fail? |
---|---|---|---|
Growth |
5-Year Annual Revenue Growth > 15% |
3.2% |
Fail |
1-Year Revenue Growth > 12% |
(0.7%) |
Fail |
|
Margins |
Gross Margin > 35% |
19.3% |
Fail |
Net Margin > 15% |
5.4% |
Fail |
|
Balance Sheet |
Debt to Equity < 50% |
241% |
Fail |
Current Ratio > 1.3 |
1.19 |
Fail |
|
Opportunities |
Return on Equity > 15% |
88.4% |
Pass |
Valuation |
Normalized P/E < 20 |
16.96 |
Pass |
Dividends |
Current Yield > 2% |
2.6% |
Pass |
5-Year Dividend Growth > 10% |
7.9% |
Fail |
|
Total Score |
3 out of 10 |
Source: S&P Capital IQ. Total score = number of passes.
When we looked at Boeing last year, it had an identical score of 3. Earnings have bounced back, bringing the stock's P/E ratio down, but a flat dividend since early 2009 has slowed long-term dividend growth.
Boeing still faces many of the same challenges it did last year. On the commercial airline front, the company has benefited from big plane orders from AMR
Meanwhile, federal budget cuts will hurt the defense side of the business. Although several competitors -- including Northrop Grumman
With a heavy burden of debt and tough economic conditions, Boeing isn't likely to move up toward perfection very soon. What the company needs most now is some clarity on both the commercial and military segments of its business. Only then will it be clear whether Boeing can eventually become 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.
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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 ."