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 and then decide whether Procter & Gamble (NYSE:PG) 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.
  • Moneymaking 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 Procter & Gamble.


What We Want to See


Pass or Fail?


5-year annual revenue growth > 15%




1-year revenue growth > 12%




Gross margin > 35%




Net margin > 15%



Balance sheet

Debt to equity < 50%




Current ratio > 1.3




Return on equity > 15%




Normalized P/E < 20




Current yield > 2%




5-year dividend growth > 10%




Total score


6 out of 10

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

Since we looked at Procter & Gamble last year, the company has jumped by 2 points, more than making up for its 1-point loss from 2011 to 2012. Margins and debt levels improved a bit, and the stock has soared nearly 20% in the past year, with much of those gains coming very recently.

For years, Procter & Gamble treaded water even as its consumer-goods peers saw substantial improvements. In particular, Unilever (NYSE:UL) and Kimberly-Clark (NYSE:KMB) focused strongly on emerging markets to try to drive growth, and they did a better job than P&G of capturing revenue growth. Kimberly-Clark is smaller and therefore might be expected to grow more quickly, but with Unilever being comparable in size, P&G's failure to match up is more troubling.

Now, though, the stage appears set for a wave of new innovation from P&G. Its new Tide Pods product has performed well lately, leading the company to introduce it to other markets. With one success under its belt, P&G's new-product teams should gain confidence as they make new attempts to add to the company's prestigious list of billion-dollar brands.

Unfortunately, P&G took a big hit earlier this week when Venezuela devalued its currency. The company held what had been worth $1.3 billion in local Venezuelan currency and therefore will take a charge of as much as $275 million to reflect the devaluation, cutting core earnings by a penny per share this quarter and $0.03 per share for full-year 2013. Clorox (NYSE:CLX) had already warned that a potential devaluation could take $0.05 to $0.10 per share off its full-year earnings, highlighting the risk that all global players face in consumer goods.

For P&G to improve, it needs to keep pushing its earnings higher to bring its valuation down to more manageable levels. If new product launches go well, then higher sales could also get P&G 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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Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Kimberly-Clark, Procter & Gamble, and Unilever. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.