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 ExxonMobil
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 ExxonMobil.
Factor |
What We Want to See |
Actual |
Pass or Fail? |
---|---|---|---|
Growth | 5-Year Annual Revenue Growth > 15% | 3.9% | Fail |
1-Year Revenue Growth > 12% | 28.4% | Pass | |
Margins | Gross Margin > 35% | 30.7% | Fail |
Net Margin > 15% | 9.8% | Fail | |
Balance Sheet | Debt to Equity < 50% | 10.3% | Pass |
Current Ratio > 1.3 | 0.93 | Fail | |
Opportunities | Return on Equity > 15% | 26.9% | Pass |
Valuation | Normalized P/E < 20 | 9.82 | Pass |
Dividends | Current Yield > 2% | 2.2% | Pass |
5-Year Dividend Growth > 10% | 7.8% | Fail | |
Total Score | 5 out of 10 |
Source: S&P Capital IQ. Total score = number of passes.
Since we looked at ExxonMobil last year, the oil giant has kept the same five-point score. A big jump in revenue over the past year came on the heels of high oil prices, but surprisingly, the company has an even more attractive valuation than it did when 2011 began.
ExxonMobil is a world power in oil. With operations around the globe, the company has a presence in nearly every market worth competing in. For instance, Exxon has jumped into the liquefied natural gas industry, planning a facility in Papua New Guinea that will compete directly with InterOil
The question, though, is whether the world will remain a safe place for Exxon. Although French peer Total
Both Exxon and fellow U.S. giant Chevron
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.
ExxonMobil is one stock that has serious long-term potential for investors, but I think you can do better. Find some good alternatives by accepting my invitation to receive the Fool's latest special report absolutely free. Inside, you'll learn the names of three promising stocks for the long haul. But don't wait -- click here and read it today.
Click here to add ExxonMobil to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.