Is Clean Harbors the Perfect Stock?
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 Clean Harbors (NYS: CLH) 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:
With those factors in mind, let's take a closer look at Clean Harbors.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||18.8%||Pass|
|1-Year Revenue Growth > 12%||20.8%||Pass|
|Margins||Gross Margin > 35%||30.2%||Fail|
|Net Margin > 15%||6.4%||Fail|
|Balance Sheet||Debt to Equity < 50%||63.1%||Fail|
|Current Ratio > 1.3||2.66||Pass|
|Opportunities||Return on Equity > 15%||14.8%||Fail|
|Valuation||Normalized P/E < 20||27.11||Fail|
|Dividends||Current Yield > 2%||0%||Fail|
|5-Year Dividend Growth > 10%||0%||Fail|
|Total Score||3 out of 10|
Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.
With only three points, Clean Harbors doesn't clean up on our scorecard. But the company is still benefiting from being in exactly the right place at the right time last year, and for good or ill, business for the clean-up specialist is likely to stay good for the foreseeable future.
Clean Harbors claims the status of the largest hazardous-waste disposal company in North America, serving the majority of Fortune 500 companies both close to home and around the world. Although the company does everything from garbage and recycling management to very specialized hazmat processes -- it helped deal with anthrax threats in the early 2000s and with clean-up projects after September 11 -- Clean Harbors has built a strong reputation with its spill clean-up business.
Obviously, cleaning up spills has been in high demand lately. The company worked with the federal government on contamination resulting from Hurricane Katrina, and BP (NYS: BP) hired the company to help with the Gulf oil spill. Although Clean Harbors hasn't been alone in that effort -- Helix Energy Solutions (NYS: HLX) fought the blowout that followed the explosion of Transocean's (NYS: RIG) Deepwater Horizon rig -- it has turned the opportunity into profits. And now with ExxonMobil (NYS: XOM) and its recent spill in the Yellowstone River in Montana, Clean Harbors is seeing plenty of business.
Earlier this week, investors rewarded Clean Harbors for a job well done, vaulting shares higher after the company announced both strong earnings and increased guidance. Until the company pays a dividend, sports somewhat better margins and internal returns, and carries a slightly less expensive valuation, Clean Harbors won't reach perfection, but for shareholders who want to feel good about what their company does, Clean Harbors makes a great addition to a stock portfolio.
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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At the time this article was published Fool contributorDan Caplingerdoesn't own shares of the companies mentioned in this article.The Motley Fool owns shares of Transocean and Clean Harbors. 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 adisclosure policy.
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