Is Calumet Specialty Products Partners the Perfect Stock?

Finding companies that have all the right stuff can produce winners.

Dan Caplinger
Dan Caplinger
Sep 5, 2012 at 12:00AM

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 Calumet Specialty Products Partners (NYSE: CLMT) 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 Calumet Specialty Products Partners.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 20.6% Pass
  1-Year Revenue Growth > 12% 60.1% Pass
Margins Gross Margin > 35% 9.6% Fail
  Net Margin > 15% 4.0% Fail
Balance Sheet Debt to Equity < 50% 97.9% Fail
  Current Ratio > 1.3 2.54 Pass
Opportunities Return on Equity > 15% 26.5% Pass
Valuation Normalized P/E < 20 26.92 Fail
Dividends Current Yield > 2% 8.2% Pass
  5-Year Dividend Growth > 10% (1.7%) Fail
  Total Score   5 out of 10

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

With five points, Calumet Specialty Products Partners manages to hit the middle of our scale. The refining industry has had its ups and downs lately, but Calumet has opportunistically managed to boost its share price by about 40% over the past year.

Calumet refines crude oil and other energy inputs into a variety of products, ranging from gasoline and diesel fuel to lubricants and consumer goods like petroleum jelly and lighter fluid. Lately, though, many integrated oil companies have been trying to get rid of their refining operations. For instance, ConocoPhillips (NYSE: COP) spun off its Phillips 66 (NYSE: PSX) refining and downstream segment into a separately traded stock earlier this year, allowing Conoco to move forward as a focused exploration and production company.

Calumet has been able to profit from the trend toward divesting refining assets. Last year, it joined with Valero (NYSE: VLO) to buy out Murphy Oil's refining assets, with Valero taking Murphy's Gulf Coast refinery while Calumet grabbed up Murphy's Wisconsin operations. The move increased Calumet's capacity by 50%, contributing to its huge revenue growth over the past year. More recently, Calumet bought a Montana refinery from a Canadian company for $120 million.

Lately, refiners have also benefited from favorable trends in the price of oil versus refined products. A relative glut of U.S. oil has reduced input prices for HollyFrontier (NYSE: HFC) and other Western refiners, while gasoline and diesel prices are more in line with more expensive Brent crude prices. As long as that disparity persists, it should be good for the industry.

For Calumet to improve, it needs to keep its MLP distributions high while working on getting margins up and cutting debt. If it can do so, it could advance toward perfection in the years to come.

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.

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Click here to add Calumet Specialty Products Partners to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.