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 Mesabi Trust
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 Mesabi Trust.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||13.9%||Fail|
|1-Year Revenue Growth > 12%||9.3%||Fail|
|Margins||Gross Margin > 35%||100%||Pass|
|Net Margin > 15%||97.0%||Pass|
|Balance Sheet||Debt to Equity < 50%||0%||Pass|
|Current Ratio > 1.3||4.29||Pass|
|Opportunities||Return on Equity > 15%||966.2%||Pass|
|Valuation||Normalized P/E < 20||15.44||Pass|
|Dividends||Current Yield > 2%||10.3%*||Pass|
|5-Year Dividend Growth > 10%||13.6%||Pass|
|Total Score||8 out of 10|
Source: S&P Capital IQ. Total score = number of passes. * Based on trailing-12-month dividend payments.
Since we looked at Mesabi Trust last year, the company has added a point. Dividend growth climbed above the 10% mark, but the stock has fallen 20% as some investors don't seem to understand exactly how Mesabi works.
As a royalty trust, Mesabi owns iron ore producing properties that a subsidiary of Cliffs Natural Resources
As happens every year, Mesabi's quarterly payout plunged during the winter, as shipping came to a standstill. But like clockwork, the distribution has always gone back up in the subsequent quarter, and often, shares rise in response.
But another confusing thing may have led to declines for Mesabi. Great Northern Iron Ore
More important are challenges presented by a slowdown in economic activity. Just as Rio Tinto
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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