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 ManTech International (NAS: MANT) 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 ManTech International.
What We Want to See
Pass or Fail?
5-year annual revenue growth > 15%
1-year revenue growth > 12%
Gross margin > 35%
Net margin > 15%
Debt to equity < 50%
Current ratio > 1.3
Return on equity > 15%
Normalized P/E < 20
Current yield > 2%
5-year dividend growth > 10%
6 out of 9
Source: Capital IQ, a division of Standard & Poor's. NM = not meaningful; ManTech just initiated a dividend in May 2011. Total score = number of passes.
With six points, ManTech International has a strong showing. The company straddles the fence between technology and national security, which has left it exposed to uncertainties about federal government spending.
Defense contractors have seen a lot of pressure lately as military spending comes under scrutiny in budget negotiations. That has held back big companies such as Raytheon (NYS: RTN) and General Dynamics (NYS: GD) , both of which have seen order backlogs drop in the past year.
But ManTech has a niche that isn't likely to disappear. Ever-more sophisticated technology from sources including drone-maker AeroVironment (NAS: AVAV) and robotic bomb-disarmer iRobot (NAS: IRBT) makes it possible to complete missions without putting troops in harm's way. By providing IT support and systems testing, including mission-critical cybersecurity measures, ManTech makes sure that sophisticated technology doesn't fail at crucial moments. And compared to rival SAIC (NYS: SAI) , ManTech has grown at a much faster pace and recently started paying a healthy dividend.
Because of its niche, ManTech has the potential to be a winner even in a budget-cutting environment. With razor-thin margins, it isn't a perfect stock, but ManTech might help you protect your portfolio as much as its products protect the nation.
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 thisarticle was published Fool contributorDan Caplingerdoesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of SAIC, ManTech International, General Dynamics, and Raytheon.Motley Fool newsletter serviceshave recommended buying shares of iRobot and AeroVironment and formerly recommended SAIC. 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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