From 1977 until he retired in 1990, Peter Lynch guided Fidelity's Magellan Fund to an astounding average annual return of 29%. With results like that, when Lynch talks, it behooves us Fools to listen. In his best-seller One Up on Wall Street, Lynch offers 13 characteristics of the "perfect" stock. He devised these criteria from some of his most successful picks over those years at the helm of Magellan.

Today, we will examine a small-cap stock whose product is familiar to millions of consumers: WD-40 (Nasdaq: WDFC), the manufacturer of the catch-all spray. The company also offers a group of complementary products including 3-In-One oil and Carpet Fresh. It has also been looking to expand into foreign markets, led by their Aussie CEO, Garry Ridge.

1. It sounds dull.
According to company lore, the name stands for "Water Displacement -- 40th Attempt," as founder Norm Larsen said he developed his patent-protected formula on the 40th try. Fun story aside, the name is still pretty boring. Point

2. It does something dull.
Although some mechanics might get excited about the never-ending list of uses, WD-40 is, in essence, a lubricant. Nothing too exciting here. Point

3. It does something disagreeable or gross.
The company has put together a collection of 2,000 uses for WD-40. One of those uses: softens and dissolves manure from work boots. Point

4. It's a spinoff.
Though it was started as the Rocket Chemical Co., the name is the only thing that's changed. No Point

5. The institutions don't own it; analysts don't follow it.
Currently, a surprising 68% of shares are held by institutions, but only four analysts have price targets on the company. Half-Point

6. Rumors abound.
WD-40 has a page on its website devoted solely to dispelling rumors, like the fact that some fans claim the product can cure arthritis. Point

7. There's something depressing about it.
Hmm, this is a tough one. While I don't see anything particularly exciting about WD-40, I don't think there's anything depressing about it either. No Point

8. It's a low-/no-growth industry.
The consumer-goods field that WD-40 competes in is dominated by giants such as Church & Dwight (NYSE: CHD), Clorox (NYSE: CLX), and Colgate-Palmolive (NYSE: CL).These behemoths aren't going anywhere fast, and any growth in the industry will likely be in small increments. Point

9. It's got a niche.
The company's signature spray has, without a doubt, created a niche all for itself. Put it up there with the big names for name-brand recognition within the United States. Point

10. People have to keep buying it.
As long as people are building things that have multiple moving parts, they'll need WD-40. Point

11. It's a user of technology.
When Lynch published his book in 1989, the Internet was in its infancy. He wanted to find organizations that used technology in any part of their business model. I'd argue that today, nearly every publicly traded company qualifies, including this maker of lubricant that helps technology run more efficiently. Point

12. The insiders are buying.
The only insider purchase I found was a 17-share buy for $670 back in January. No Point

13. It's buying back its shares.
WD-40 is currently authorized to buy back as much as $60 million worth of its own shares. This currently represents about 8% of the company's market cap. Point

Congratulations go to WD-40, receiving nine and a half out of 13 points. This does not, however, make WD-40 an immediate buy. On one hand, the company is currently trading at a pricey 20.5 times earnings on expectations that it will make inroads abroad. If it fails in these attempts, the stock is surely overpriced. On the other hand, it could represent a potential buyout candidate for industry stalwarts such as Clorox or Church & Dwight, who would love to get their hands on the brand both domestically and abroad.

Lynch didn't earn his results simply by passing all companies through a screen like this. It provided him with a starting point for his due diligence. By taking this information and starting your own research on WD-40, and adding it to your watchlist, you'll be following in the footsteps of an investing legend.

  • Add WDFC to your watchlist.