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.


What We Want to See


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.

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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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.