Is Owens Corning the Perfect Stock?

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 Owens Corning (OC -1.43%) 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 Owens Corning.

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

Owens Corning scores only two points, showing the weakness it suffered during the recession. But shares have rebounded more than 30% over the past year as some believe the housing and construction market may have finally hit bottom.

Owens Corning is best known for its fiberglass insulation products, but it actually makes a wide array of building materials. You'll find roofing shingles among its product lines, and it also has an extensive glass fiber fabrication business that serves as a supplier to a host of industries, ranging from telecom and transportation to defense and aircraft. The company was formed as a partnership between Corning (GLW -0.03%) and Owens-Illinois way back in 1935 and was spun off as a separate entity just three years later.

Throughout the construction bust, Owens Corning and its peers found themselves under pressure. Cement maker Cemex (NYSE: CX) fell sharply during housing's numerous false starts but has seen shares triple in the past year as a recovery has taken shape. Similarly, Masco (MAS -4.48%) has seen demand increase as more homeowners remodel their homes and need cabinets and plumbing supplies.

Despite calls for a rebound, Owens Corning hasn't seen a boost in its business yet. Earlier this week, the company slashed its earnings guidance, noting that sales of both roofing products and composite materials were much weaker than expected. Owens Corning's shares dropped 8%, and drywall maker USG (USG) also sank in sympathy.

For Owens Corning to improve, it needs a much faster pace of recovery to boost demand for both segments of its business. Margins may never be strong, but faster growth and better returns on equity could go a long way toward bring Owens Corning closer to perfection.

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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