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 Intel
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 Intel.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||8.8%||Fail|
|1-Year Revenue Growth > 12%||23.8%||Pass|
|Margins||Gross Margin > 35%||62.5%||Pass|
|Net Margin > 15%||24.0%||Pass|
|Balance Sheet||Debt to Equity < 50%||16.0%||Pass|
|Current Ratio > 1.3||2.15||Pass|
|Opportunities||Return on Equity > 15%||27.1%||Pass|
|Valuation||Normalized P/E < 20||13.02||Pass|
|Dividends||Current Yield > 2%||3.2%||Pass|
|5-Year Dividend Growth > 10%||14.4%||Pass|
|Total Score||9 out of 10|
Source: S&P Capital IQ. Total score = number of passes.
Since we looked at Intel last year, the semiconductor giant has kept its near-perfect score of nine. Even as some raise concerns about a declining PC market, Intel is making strides toward being a bigger presence in mobile-device chips.
Intel has been running on all cylinders for the past year. With a nice bump in its stock price, it's clear that the chip leader in PCs has been doing an effective job monetizing its dominant position in the industry, especially with emerging-market growth helping power PC sales. In its most recent quarterly report, Intel reported sales that rose 22% and earnings that beat estimates.
One reason for Intel's dominance is that it has in-house production capabilities. By contrast, Advanced Micro Devices
The big criticism that Intel has gotten is that it's behind in mobile devices. Certainly, rival ARM Holdings
The growth that a serious entry into the mobile market would create could easily give Intel its final point on the way to perfection. With a healthy and growing dividend, Intel truly stands out from the crowd, and that's why I'm making a CAPScall for the chip giant to continue outperforming the overall market in the future.
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 doesn't own shares of the companies mentioned. The Motley Fool owns shares of Intel. Motley Fool newsletter services have recommended buying shares of NVIDIA and Intel, as well as writing puts in NVIDIA. 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.