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 Suncor Energy (NYSE: SU) 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 Suncor Energy.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 20.4% Pass
  1-Year Revenue Growth > 12% 15.8% Pass
Margins Gross Margin > 35% 50.5% Pass
  Net Margin > 15% 10.9% Fail
Balance Sheet Debt to Equity < 50% 27.9% Pass
  Current Ratio > 1.3 1.37 Pass
Opportunities Return on Equity > 15% 11.4% Fail
Valuation Normalized P/E < 20 11.28 Pass
Dividends Current Yield > 2% 1.3% Fail
  5-Year Dividend Growth > 10% 23.4% Pass
  Total Score   7 out of 10

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

Since we looked at Suncor Energy last year, the Canadian energy giant has picked up two points. The boost has come largely from weakness in the shares over the past year, which has pulled valuations down sharply when combined with better earnings.

As I noted in looking at Suncor as a retirement stock prospect last week, Suncor is profiting from the oil sands in the Athabascan region of northern Alberta. High oil prices have brought a wave of interest in unconventional plays, with Penn West Petroleum (NYSE: PWE) also working in the nearby Peace River area. With oil sands production costing about $35-$40 per barrel, the margins are less than for regular drilling -- but it's still extremely profitable for both Suncor and Penn West when they can get $100 on the open market.

The bigger threat is from competition. Imperial Oil has a stake in the oil sands, with ExxonMobil having taken a position in the company. ConocoPhillips (NYSE: COP) and Chevron are also active there, with Conoco actually having owned part of the controversial Keystone pipeline that many see as instrumental in bringing oil-sands products to market.

Suncor also faced trouble early last year when the Arab Spring brought Libyan oil production to a halt. That hurt not only Suncor but also fellow producers Eni (NYSE: E) and especially French oil giant Total (NYSE: TOT). But Suncor's Petro-Canada subsidiary was expected to return to full production by the beginning of this year, suggesting that things should return to normal for that side of the business.

Suncor will struggle to reach perfection, as margins for big oil companies are often well below our 15% threshold. But with more emphasis on keeping the dividend moving higher, Suncor still looks like a reasonable pick for the energy part of your 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.

If you like Suncor, we've got another energy company that could knock your socks off. Read about it right here in the Motley Fool's special free report on the energy industry and its best prospects -- it's free but only available for a limited time.

Click here to add Suncor Energy 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. Motley Fool newsletter services have recommended buying shares of Chevron and Total. 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.