Has Total Become the Perfect Stock?

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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 Total 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 Total.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-year annual revenue growth > 15%

5.9%

Fail

 

1-year revenue growth > 12%

9.5%

Fail

Margins

Gross margin > 35%

30.4%

Fail

 

Net margin > 15%

5.9%

Fail

Balance sheet

Debt to equity < 50%

45%

Pass

 

Current ratio > 1.3

1.38

Pass

Opportunities

Return on equity > 15%

15.1%

Pass

Valuation

Normalized P/E < 20

5.87

Pass

Dividends

Current yield > 2%

6.2%

Pass

 

5-year dividend growth > 10%

2.5%

Fail

    
 

Total score

 

5 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Total last year, the company has given back the point it gained from 2011 to 2012. The stock has also sagged, falling about 10% over the past year in a sluggish market for energy stocks overall.

Total has suffered from a couple of major factors recently. Throughout the industry, oil and gas companies have seen lower prices and weak production, especially on the natural gas side of the business. Total has actually done a good job of keeping revenue growth fairly strong, but another headwind it faces is the fact that as a French company, it's mired in the European financial crisis that's been going on for years.

Total has been working hard to grow. Alongside partner Chesapeake Energy , Total has made a big play in the Utica Shale, taking a 25% stake in the more than 450,000 net acres that the companies have in the region. Yet with news that it would slow natural gas production in North America due to high supplies, Total needs gas prices to cooperate in order to take full advantage.

Total has also made a big bet on renewables, with its majority stake in solar giant SunPower . Although SunPower has had its own struggles, its efficiency edge over its peers gives the company -- and therefore Total -- advantages that bode well for its survival and leadership in the industry.

Total needs a rebound in oil and especially natural gas to take shape. Moreover, expansion in other areas of the world where gas prices are more favorable could be a key to Total's growth. With shares very cheap at current levels, Total has plenty of room to gain in its quest for perfection.

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.

Total's partnership with Chesapeake hasn't gone as well as investors had hoped, with low nat-gas prices the main culprit. But Chesapeake still has enormous potential, and to learn more about it, please accept this invitation to read The Motley Fool's premium report on the company. Simply click here now to access your copy, and as an added bonus, you'll receive a full year of key updates and expert guidance as news continues to develop.

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

The article Has Total Become the Perfect Stock? originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Total. The Motley Fool has options positions on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. 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 Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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