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 Stillwater Mining (NYSE: SWC) 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 Stillwater Mining.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 6.7% Fail
  1-Year Revenue Growth > 12% 54.2% Pass
Margins Gross Margin > 35% 34.1% Fail
  Net Margin > 15% 17.2% Pass
Balance Sheet Debt to Equity < 50% 27.3% Pass
  Current Ratio > 1.3 6.17 Pass
Opportunities Return on Equity > 15% 22.5% Pass
Valuation Normalized P/E < 20 14.66 Pass
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
  Total Score   6 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Stillwater Mining last year, the platinum and palladium miner has made a huge move upward, gaining four full points. Big gains in revenue, margins, and returns on equity combined with a big drop in the share price have given Stillwater a much more attractive combination of attributes.

Stillwater plunged in 2011 as it suffered two big hits. First, even though gold prices continued higher, platinum and palladium didn't follow suit, with the metals dropping around 15% in price. Yet even with the slump, the company was able to deliver production volume growth, and with realized prices still higher than average, that produced solid earnings for Stillwater.

The other major event for the year was Stillwater's agreeing to buy Peregrine Metals at a huge premium. The move diversifies Stillwater into gold and copper production, but some questioned why Stillwater would choose to do so at a time when gold prices were near historic highs. Canadian rival North American Palladium (AMEX: PAL) has a gold mine in addition to its primary palladium mine, but investors see both as primarily platinum-group metal plays.

Still, demand for platinum-group metals appears strong. With Ford (NYSE: F) and other automakers posting solid results, the need for the metals in catalytic converters helps support prices. Moreover, the precious metals ETFs ETFS Physical Platinum (NYSE: PPLT) and ETFS Physical Palladium (NYSE: PALL) remain an important contributor to demand, although weakness in prices hasn't largely halted the growth in those ETFs.

For Stillwater Mining to continue on the path to perfection, it needs to turn its recent acquisitions into more profits. If it can deliver the goods, then investors could take heart in a strong Stillwater -- and make early investors look very smart indeed.

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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Click here to add Stillwater Mining to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of and creating a synthetic long position in Ford. 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.