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 CR Bard
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 CR Bard.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||7.9%||Fail|
|1-Year Revenue Growth > 12%||6.5%||Fail|
|Margins||Gross Margin > 35%||62.1%||Pass|
|Net Margin > 15%||11.3%||Fail|
|Balance Sheet||Debt to Equity < 50%||68.1%||Fail|
|Current Ratio > 1.3||1.86||Pass|
|Opportunities||Return on Equity > 15%||19.2%||Pass|
|Valuation||Normalized P/E < 20||17.45||Pass|
|Dividends||Current Yield > 2%||0.8%||Fail|
|5-Year Dividend Growth > 10%||6.5%||Fail|
|Total Score||4 out of 10|
Source: S&P Capital IQ. Total score = number of passes.
Since we looked at CR Bard last year, the company has dropped a point. Falling net margins are to blame for the downgrade, and the company has also seen slower growth.
Bard makes a variety of medical devices, including blood vessel and urinary tract stents and catheters. Its products are also used for cancer treatment and surgical procedures.
The environment for medical devices has been hit or miss in recent years. Both Medtronic
Bard in particular has been through some important legal battles. Last summer, Bard's stock fell sharply after the company released weak earnings. Profits took a hit after the company settled lawsuits over hernia implants it produced. Yet in February, Bard won a ruling upholding what could become a $1 billion recovery against W.L. Gore for patent infringement.
For Bard to keep improving, clarity on the health care reform law as well as improving economic conditions overall would help immensely. When those things come, Bard could be poised to get out of its recent funk and start realizing its full potential.
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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Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of MAKO Surgical and Medtronic. Motley Fool newsletter services have recommended buying shares of Stryker, Intuitive Surgical, and MAKO Surgical. 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.