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 Exelon (NYSE: EXC) 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 Exelon.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 4.0% Fail
  1-Year Revenue Growth > 12% 7.7% Fail
Margins Gross Margin > 35% 40.9% Pass
  Net Margin > 15% 13.7% Fail
Balance Sheet Debt to Equity < 50% 95.2% Fail
  Current Ratio > 1.3 1.51 Pass
Opportunities Return on Equity > 15% 19.6% Pass
Valuation Normalized P/E < 20 9.99 Pass
Dividends Current Yield > 2% 5.2% Pass
  5-Year Dividend Growth > 10% 5.6% Fail
       
  Total Score   5 out of 10

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.

With five points, Exelon delivers a solid but unremarkable performance. Like many of its utility peers, the company has strong dividends and an attractive valuation but lacks growth and has a fairly high debt load to maintain.

Until the Japanese earthquake hit, Exelon looked to be square in the middle of a promising business. As a giant in nuclear power, Exelon was on the cutting edge of a fossil fuel alternative that was experiencing huge growth.

But after the quake, investors ran away from Exelon because of its nuclear exposure. Despite the fact that competitors Duke Energy (NYSE: DUK) and Southern Company (NYSE: SO) also have nuclear power facilities, Exelon's shares took a hit along with more specialized nuclear-related stocks like uranium producers Cameco (NYSE: CCJ) and Denison Mines (AMEX: DNN).

The question going forward is whether fears about nuclear energy are overblown. Despite the tragedy in Japan, cheap, non-carbon-producing energy remains a global priority, and companies like Exelon will be the ones to deliver it. Things may be bumpy for shareholders, but value investors may want to look at Exelon as a beaten-down opportunity.

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.

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

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.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. Exelon is a Motley Fool Inside Value recommendation. Southern Company is a Motley Fool Income Investor pick. Motley Fool Options has recommended a covered strangle position on Exelon. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.