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 Dole Food (NYSE: DOLE) 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 a 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 Dole Food.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 3.8% Fail
  1-Year Revenue Growth > 12% 4.8% Fail
Margins Gross Margin > 35% 10.9% Fail
  Net Margin > 15% 0.5% Fail
Balance Sheet Debt to Equity < 50% 205.3% Fail
  Current Ratio > 1.3 1.68 Pass
Opportunities Return on Equity > 15% 5.1% Fail
Valuation Normalized P/E < 20 17.74 Pass
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
  Total Score   2 out of 10

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

With only two points, Dole Food doesn't look too appetizing. The food maker has been in a big slump over the past year, but recent results suggest a turnaround could be coming.

Like many food companies, Dole has suffered in recent years. The company has never been overwhelmingly profitable, but after a loss in 2010, Dole just barely got into the black last year. Yet sales are still down from their levels three years ago.

One way in which Dole has tried to improve its margins is by getting into the organics business. Both Dole and Chiquita (NYSE: CQB) have tried to take advantage of increased demand for organic fruit. But unlike Hain Celestial (Nasdaq: HAIN) and United Natural Foods (Nasdaq: UNFI), both of which truly focus on organics, Dole and Chiquita still get the majority of their business from conventionally grown food products. That explains why Dole's margins are so much thinner than either Hain's or United Natural's.

Last week, Dole finally had something go right. The company announced a much narrower loss than expected, sending the shares up 12%. Even in a weak environment, Dole has done a good job of cutting costs to try to get back to profitability.

For Dole to start moving in the right direction, it needs to figure out a strategy to put its brand name to use. Specifically, a closer relationship with high-end grocer Whole Foods (Nasdaq: WFM) could go a long way toward boosting Dole's perceived organic-friendliness, and it could also enhance Whole Foods' reputation by showing how it can force big food companies to change their ways. Without bold steps like this, Dole will continue to be at the mercy of changing trends and wholesale food prices.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfection than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate the best investments from the rest.

Dole Food isn't the perfect stock, but we've got some ideas you may like better. Let me invite you to learn about three smart long-term stock plays in the Fool's latest special report. It's yours for the taking and is absolutely free, but don't miss out -- click here and read it today.

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