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 ManTech International
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 ManTech International.
|
Factor |
What We Want to See |
Actual |
Pass or Fail? |
|---|---|---|---|
| Growth | 5-year annual revenue growth > 15% | 20.9% | Pass |
| 1-year revenue growth > 12% | 21.8% | Pass | |
| Margins | Gross margin > 35% | 14.9% | Fail |
| Net margin > 15% | 4.8% | Fail | |
| Balance sheet | Debt to equity < 50% | 19.4% | Pass |
| Current ratio > 1.3 | 1.64 | Pass | |
| Opportunities | Return on equity > 15% | 13.9% | Fail |
| Valuation | Normalized P/E < 20 | 9.81 | Pass |
| Dividends | Current yield > 2% | 2.3% | Pass |
| 5-year dividend growth > 10% | NM | NM | |
| Total Score | 6 out of 9 |
Source: Capital IQ, a division of Standard & Poor's. NM = not meaningful; ManTech just initiated a dividend in May 2011. Total score = number of passes.
With six points, ManTech International has a strong showing. The company straddles the fence between technology and national security, which has left it exposed to uncertainties about federal government spending.
Defense contractors have seen a lot of pressure lately as military spending comes under scrutiny in budget negotiations. That has held back big companies such as Raytheon
But ManTech has a niche that isn't likely to disappear. Ever-more sophisticated technology from sources including drone-maker AeroVironment
Because of its niche, ManTech has the potential to be a winner even in a budget-cutting environment. With razor-thin margins, it isn't a perfect stock, but ManTech might help you protect your portfolio as much as its products protect the nation.
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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Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our "13 Steps to Investing Foolishly."
