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 Becton Dickinson
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 Becton Dickinson.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||5.8%||Fail|
|1-Year Revenue Growth > 12%||6.4%||Fail|
|Margins||Gross Margin > 35%||51.6%||Pass|
|Net Margin > 15%||15.1%||Pass|
|Balance Sheet||Debt to Equity < 50%||93.2%||Fail|
|Current Ratio > 1.3||3.27||Pass|
|Opportunities||Return on Equity > 15%||24.9%||Pass|
|Valuation||Normalized P/E < 20||15.75||Pass|
|Dividends||Current Yield > 2%||2.5%||Pass|
|5-Year Dividend Growth > 10%||13.3%||Pass|
|Total Score||7 out of 10|
Source: S&P Capital IQ. Total score = number of passes.
Since we looked at Becton Dickinson last year, the company has boosted its score by a point. A 15% drop in its stock price has brought down its valuation while kicking its growing yield above the 2% level.
Many investors like Becton for its stability. With a wide range of simple medical devices like syringes and catheters, as well as more advanced diagnostic tests, Becton is well-positioned for the expected demographic boost in health-care demand as Baby Boomers advance toward retirement.
But Becton is far from standing still. Its FocalPoint medical imaging system has made great advances toward helping medical professionals find problems at the cellular level quickly and efficiently. Although pure med-tech plays MAKO Surgical
In its most recent quarter, Becton raised its earnings guidance for the rest of the year. Although its biosciences unit saw cutbacks from government agencies and academic institutions, its medical and diagnostic segments did fairly well.
The big challenge that Becton may face will come from competitors that are revamping their businesses. With both Abbott Labs
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 Intuitive Surgical, MAKO Surgical, and Abbott Labs. Motley Fool newsletter services have recommended buying shares of Intuitive Surgical, Becton, Covidien, 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.